*3 Allеghany Corporation which at $15,000,000. had a time market value of Meyer Abrams, Ill., Chicago, and Ben shares, any proceeds thereof, Such Schlesscl, nett I. City (Shul of New York “segregated were called assets.” The debt- man, Abrams, Shulman and Chicago, that, agreed or until least Ill., counsel), appellant. principal amount of the notes had been re Davis Polk Reed, Wardwell Gardiner & cancelled, tired and the debtor would not of New York (Ralph City M. Carson and sell, mortgage, pledge, transfer other or Phillips, Francis W. both of New York dispose segregated of the wise as> City, counsel), appellee. sets, cash, “except applied by be Before HAND, L. AUGUSTUS N. only for following purposes: debtor AND, FRANK, FI Judges. Circuit cash; (a) (b) held as To be retire by purchase redemption, *4 “segregated the whenever the value of provi contained these unusual withdrawal princi- of the sets” became less than 50% were sions: When the notes of pal outstanding, then amount of all notes cancelled, obligations retired all and then Sweringens repair such the Van Sweringens of the Van should terminate by deficiency assigning delivering and to right with they and were have the to to readily securities in debtor the marketable reassigned draw to and delivered and at their then market an amount sufficient “assigned them all securi to ties,” debtor the equal of value to amount such deficien- the of the surrender to the debtor cy. “assigned referred to as Such securities were obligation to the any Van theretofore issued “assigned the securities.” For Also, any Sweringens therefor. give was to the Van the debtor securities” Sweringens any liquidation, time before the debtor’s non-negotiable obligation a “assigned excess in the was to securities” Sweringens which the were hold in Van to Sweringens.1a be withdrawable the Van the holders of out- trust for benefit of the The Indenture described various “events that, in the standing to extent notes the others, default,” including, among a de- of 'liquidation of the debtor and of a event payment any fault of of in the installment of the full the holders after to distribution thirty days; a de- continuing interest for notes, payment deficiencyin full of the a the provisions “segregated fault as the in the to interest thereon notes and accrued remain, clauses; negative would, pledge assets” in the or Sweringens to meet Van the relating agreement to withdrawal Clause the executed simul- That begins excess, taneously All of follows: “3. an as the Indenture. assigned agreement la securities so and delivered the between Clause of to, Sweringens Corporation Sweringen the Van the and 'the Van the shall, Sweringens until hereunder the Van follows: “2. The Cor- reads as brothers to same poration shall be withdraw the to the Van Swerin- entitled shall deliver permitted, assignment respect as hereinafter be available to gens such of Corporation ap- Sweringens delivery creditors of the to Van and payment plication in- readily Corporation of such mar- of subject, liabilities, obliga- how- debtedness and the stock or ketable securities ” * * * following ever, to the conditions: Corporation. case tions of (Italics added). obliga- consists of such consideration rights 2 relates Corporation obligations As Clause to the of such tions particular and non-negotiable Clause foi-m shall be shall generally,, creditors (ex- to the of provide shall the same be held provisions. ambiguity in some cept surrendered as appeal purposes provided) At of this least Corporation as hereafter summary judgment, we inclined of the holders benefit of trust Unless, following extent, thus: them construe before said notes to Sweringens liquidation, the Van liquidation debtor’s Cor- event of a surrendered non-ne- poration full distribution after repre- obligation gotiable deficiency debtor *5 by Morgan Company P. banks) headed J. empowered express trust” trustee of an was (which we shall call Morgan) made two equity at institute an action law or to loans, $16,000,000 of to one Vaness1b and unpaid, obtain due and to the amounts thus $23,500,000 the one of to debtor’s subsi proceedings, and to judgment in such a defendant, diary. The in of the judgment against the any enforce subsidiary, Guaranty Company, terest of its the rights of action under debtor. All important as one the sellers of of the any of the notes could Indenture or under notes, participated in these to loans posses- by the trustee without be enforced $11,000,000. extent The the of loan to event of insol- sion fo notes. the the pledge was by secured Vaness the of vari debtor, the bankruptcy vency or securities, ous debtor, i.e., all the including stock of the power to and file given was execute trustee proofs 1,744,800 shares. to The loan of, of, agent and as of debt on behalf subsidiary the debtor’s was secured by listed was also the trustee noteholders. The it, stocks owned a having market value power proceedings given to institute such $38,000,000. proceeds Part the of of expedient necessary deem or “to as it pur the loan to was used Vaness to any impairment rights of its or the prevent $10,000,000 amount govern chase face any acts of. rights of the ment bonds which were substituted for the “or in violation of the” debtor of others 500,000 shares, Alleghany “assigned the securities,” the * * * deemed the or Indenture way: in this Vaness delivered preserve necessary expedient or to trustee Sweringens those bonds to Van who rights of the protect its “assigned delivered them as securities” to noteholder was noteholders.” No in exchange the debtor Alleghany for the under the action right to institute Sweringens, stock. The Van turn, de any remedy thereunder or for Indenture non-negotiable livered to Vaness the gation obli least of at the holders unless $10,000,000. of the debtor for That outstanding then notes face amount obligation pledged by was Vaness requested trustee to first should made $5,000,000 the loan to it. banks of time, trustee, after reasonable act and the loan to debtor’s subsidiary was provided that the was do so. failed purchase government which, used bonds anything in liable for should not be trustee by arrangements between the debtor and “except the trust for its connection subsidiary (not necessary to describe misconduct”; the Indenture wilful own 400,000 were substituted for here) Al exculpatory clauses which contained other leghany shares constituting theretofore later discuss. shall “segregated assets.” As a result of this transactions, notes, debtor, and other issuance of addi aftеr the long Not $15,000,000 price “segregated market a decline of tion assets” because Alleghany shares, Sweringens “assigned securities” and the Van de- and all the stock subsidiary, debtor, “assigned also securi- of became owner livered $18,000,000. 1b This loan was later increased to with the open arrangements the sub- terms of its of an account claim banks, approximately banks sidiary paid to those amount of on account $27,000,000. 1930 interest of their loans to Vaness. The November proceeds paid notes was out trustee, fully The defendant, only debts The loan to Vaness. aware of knew this situation. It also $30,000,000note the debtor consisted of knew another crisis at hand. For obligation to the issue, the subordinated which to funds with the debtor no liability contingent Sweringens, Van pay installment, November the third due $4,000,000, guarantor for maximum of notes; of interest on its mortgage first $8,000,000 of an secured supply subsidiary debtor’s funds; subsidiary.2 the rec- As bond issue money assets had no Vaness summary stands, appeal ord $300,000 purpose except available for that to believe judgment, reason securities”; “assigned of exceás value of called ever have been the debtor would all $300,000 pay and that was insufficient to guaranty. anything on pay interest, approxi- which amounted $728,000.3 mately 1931, the debtor’s During the summer of in market value. The outstanding fell possibility notes canvassed the “segregated debtor, as- debtor, using part liquidation proceedings against sets,” purchased pro- on the market some proceedings stop since such fifty at dollar prevent those notes cents on buying cess of and would notes By thirty “assigned dollar. at cents se- some withdrawal Vaness pur- had thus the debtor October the note curities” after the reduction of chased, $1,815,057.89, the face notes in result which would issue process $3,773,000. Had that purchases amount continued. from such continued, fifty less buying affidavits, presented by *6 $15,000,000 acquiring of such on the debtor, judgment, the its motion of summary notes, Guaranty' can- to be would have caused them of the defendant and of officers celled; remaining “assigned thereupon Company, strongly the trustee indicate that the securities,” a at least hаving cash value of that in fact could, believed that it and then compel liquidation provi- could, the could, debtor’s under the unusual it then $7,500,000, inability of the Indenture, withdrawn in November because of the sion inter- pay the November 1 debtor its of the debtor to upon surrender the of Vaness 3a For, if installment due the notes. obligations. est non-negotiable that event occur, then the trustee would default should and creditors would lose the its debtor Indenture, $7,500,000,i.e., power, under be have the the there would claim to that notes, maturity there- the accelerate the $7,500,000 less of assets available to the judgment approxi- obtain a noteholders 'could then The noteholders. then, mately and armed debtor; $27,000,000, assets of the other only look the liquida- judgment, the debtor’s that to cause the the which consisted shares tion. subsidiary appear by that (which debtor’s valueless) and the time to have become sharp Moreover, drop of the in open against $27,000,000 account claim owned market of the listed stocks value which, subsidiary the' then so trustee subsidiary, and serious because of believed, the debtor would apparently subsidiary’s in of the reduction the value probably recover a sufficient amount never principally assets (consisting other relatively portion estate), small pay mortgaged than real the investments of more time, subsidiary (which the same con- its notes. At debtor in the face Vaness, assets withdrawn under the debtor’s other than stituted ciency 2 Defendant, in its brief in such securities and Van this court Morgan, infra, Sweringen inter brothers would been obli- Hackner v. so have deficiency. obligation gated repair preted that The rec- the maximum under that suggests guaranty. that ord more than permit Indenture did not not have done so. The use 3a present “segregated purpose. record, On it would assets” for that seem $500,000 loan, $300,000 Cleveland Had more than the “excess” “assigned banks, purpose for that could not securities” been so used made except (assuming deciding, without the In- been have obtained offer-plan permitted use), described below. such denture would, extent, defi- to that have face оf $13,444,000) at least from about amount of cash 42.2% 49% the their notes. For the debtor then in value that reduced had become so among distribution insolvent, i.e., the have had available for probably debtor was $13,444,000 of probably approximately exceeded its creditors liabilities of its amount “seg (or consisting of equivalent) Delaware cash assets. Under the of its the value corpora “assigned regated securities.”4 assets” and statutes, of a Delaware a receiver ap may (ignoring The liabilities subor insolvent is thus tion which Sweringens) obligation an un suit of dinated Van state at the pointed in that notes, the face outstanding judgment. consisted of having no secured creditor approximately $26,227,000, could amount then, the trustee may, be true previously contingent obligation a re des appointment of procured the obliga ap Assuming actual debtor.3b After cribed. ceiver Indenture, contingent trustee, tion would have accrued on pointment, the maturity liability, been available there would have could have accelerated the pay liquidation proceedings, deduct apart default before notes, quite pay ing expenses, in cash more sufficient interest.3c ment of face of the notes. As the than pro- liquidation The trustee believed very the debtor was debt structure of debtor, against begun ceedings, if then simple, assets other than cash insolvency surely precipitate almost solely government bonds consisted the debtor’s proceedings Vaness open of, account claim stock us, we subsidiary. facts before now On expense subsidiary, against, its say did not believe trustee cannot estimate, present pur proceeding, we proceedings against insolvency that such $590,000.4a thai poses, as not to exceed On substantially reduce subsidiary would basis, liquidation would the debtor’s have- on their by the banks recovery least yielded all noteholders at subsidiary. $23,500,000 loan to the That the debtor cash. Even if we assume that subsidiary’s only by the loan was secured $4,- obliged to would have been meet the value then had a market listed stocks which 000,000 full, contingent liability esti $8,200,000, leaving only approximately liquidation would have mate $15,000,000. deficiency expenses, in cash yielded, after about 42.2% hoped that the market trustee for all noteholders.5 stocks would rise to value of those listed deficiency, as to reduce that some extent so bring decided not to about *7 receivership bank- that, if and believed Instead, liquidation debtor. the on averted, subsidiary ruptcy were then trustee, or about the the October its real would increase in value suffi- estate debtor, Vaness, Morgan lending pay it some of that de- to enable to ciently agreed banks shall we pay substan- ficiency something to also plan. plan, call the offer Under this all of, open $27,000,000 account claim tial on its paid were the interest noteholders on 3% by held debtor. the offered, exchange in November and were they appear, liqui- notes, for their of the face of 'the On the facts as now 50'% against had notes in cash and 20 shares of the proceedings dation the debtor $1,000 stock for note.5a The offer instituted in all the noteholders each open from cash until received on hand was to remain December would have note cess after As to the la, supra. ate to such vassed about 4a 5 If, highly 3b 3c bankruptcy. This At This fact la, procured the debtor’s contrary $300,000 at the consider order generous figure figure liquidation began, inability the trustee trial, to trial. $300,000 excess were not may appropriately included the to whether be what to withdraw such “assigned conservative, here. also the facts were said be see adjudication “excess” of successfully securities.” appropri footnote in foot- be can- we use ex- would have not divest Vaness mately dation, pledgee) banks as 324,540 shares, est, centages included 7%. On that 5a If all noteholders the offer 47.7% then the in the assets collateral. basis, non-accepting voting received the hands of the leaving plan, deducting be above control (or Thus the offer reduced to 41.1%, from available on 1,419,260 estimated accepted, 38.1% banks as its respectively. aggregate approxi- lending debtor. to 44.- inter- liqui- lost, they per- 29, $26,227,000 liquidation. face would As to have received 1931.5b On October outstanding. principal they the the were left By notes, of their amount of notes were merely part $11,227,000 right participate to plan, the first terms the offer —-as cancelled, $15,000,000of notes to be of a class of acquired holders of notes thus were $15,000,- subsequent —in issue to whatever the debtor thereby note reducing the ly open withdraw Thereupon to realize account claim
000. the Vaness con- subsidiary. year, the non- “assigned securities” the next remaining (or cash its. an additional $7,500,000 accepting noteholders received about of. sisting payment re by way interest. This those monies were equivalent) and 6% duced their acquire that, solely fur- used, necessary, regarding far as loss so so assets, accepted the participation who their loss of in the cash ther notes from those purchased by notes, being they lost from offer. Such 33.2% 40%.’6a but were cancelled Vaness, not to be were accepted the If all the noteholders had delivered outstanding, to be remain offer, only advantages them over additional collateral lending to the banks as liquidation, if then above results of $300,00 ex- security loans. The for their been the trustee, caused would have applied to be “assigned cess securities” liquidation expense saving of such 1 inter- November payment of the towards $300,000 (and perhaps the sharing money notes; balance on the est necessary avoiding disadvantage of excess). But the (esti- payment interest accept the liquidation to those who did towas $500,000”) “approximately mated appears would, offer believed, so the trustee by cer- debtor to the a loan procured now the facts greater. be far For $11,227,- If, banks. Cleveland tain trustee, strongly suggest us before did cancelled, noteholder 000notes were consum- anticipating after the while result, offer, as a so accept there would mation of the offer-plan, used was not $7,500,000 part of the some non-accepting note- recovery for some holders, applied by notes, was to be purchase recovery, did not beliеve loan payment of that first Vaness received, interest together with the on account and then banks Cleveland remotely ap- anything would amount to then interest due they would have received proaching what banks, no other funds the lending loan liquidation in 1931. being interest payment of for the noteholders no trustee sent The sufficient If available. concerning the offer information or advice pay the Cleve- $7,500,000to balance debtor plan. written sent offer paid full, then were to be land banks completely silent noteholders was to the realized of the first amounts out lending by the loans existence of the debtor’s uncancelled landing banks on the participation of defendant banks, the re- banks were notes which plan that loans, provision of the security plan. under the as collateral ceive $7,- might receive banks agreed lending banks to release notes, 500,000 part of the uncancelled much the stock of the so their collateral *8 and the ar- by the banks the loan Cleveland carry out necessary to debtor as loan,- payment rangements for the of accepted by of offers noteholders. the terms to the offer that as an alternative fact the accepted the offer noteholders who Those liquida- could have caused trustee the 53%, i.e., in cash thus receive would principal 50% debtor, estimate the the tion of interest. who did Those and 3'% liquidation would of such have trustee what merely accept receive the would 3% yielded.7 plan gave Thus offer cash. the interest in out, As matters the holders of all worked accepting noteholders from 4% 10.8%6 $1,213,000 face amount of notes ac but they than have received in cash would more in consequence, cepted As the a there i.e., offer. But non- liquidation, 42.2% 49%. notes, $15,000,000 only outstanding of in cash left receiving inter- were acceptors, 3% were, offer-plan, $13,784,000 the denied from under the offer est, of which were, they lending banks as plan, the amount of cash delivered to ad of to 46% 39.2% figures 6a Using supra, 5b extended was later to December nóte they lost from 38.7%. 32.1% they Doubtless, too, omissions from thе offer will this cash Other received they promptly than would noted below. have far liquidation. via distribution received holders all security. offer, collateral Because accepted dkional noteholders $1,213,000 accept, payment of did not there notes source that loan would remained, $7,500,000 withdrawn be out of the such a $500,000. realization of cash, $606,000,8 i.e., the sum of that if knew sufficient number of 50% paid which non-ac would have been noteholders accept, failed to so that out of $7,500,000 accepted noteholders if cepting enough pay cash remained to approximately amount, banks, offer. Of off the Cleveland lending then the $500,000 was, payable would, plan, under the and banks as pledgees, become the paid lending to the Cleveland banks. The holders $1,000,- (approximately) at least banks, plan, under the re were entitled to $15,000,000 face amount of the *9 payment bank could not be assured of un was allowed continue, under the name of since, were thus less sum realized Morgan, if Hackner Eastman, v. as to Miss ber 1 item purposes some Cleveland proximately curities” 8 Included In fact $16,000 we interest; approximately $53,000 paid amounted other banks for ignore in $7,516,000, or an excess of which is withdrawn in in monies borrowed for expenditures these paying cash unexplained calculations. “assigned did not value Novem- pro- and ap- se- an loan on and presumably have er stantial vide for 9a $7,500,000. The ‘W'e thus, compelled of the debtor’s stock to secure a advantages. shall lending which the interest was payment controlling could have voted that discuss still other sub- later banks, of such a loan out of payment. holding debtor, unpaid, great- could stock Cir., Kelby, decided .noteholder. 134 F.2d intervening accepting an Morgan, motion, our in the district after decision Hackner v. suit, defendant’s on that, were the we “res” summary judgment for noted word court a entered Morgan, “thing,” vagueness F. translated as its (Eastman defendants v. “thing” affirmed; apparent, Supp. Hackner v. and such a and we 637) as, instance, an a intangible, could Morgan, Cir., 130 F.2d certiorari for Subsequently, Guaranty Trust in action.12 (thing) 317 chose denied Eastman v. Bank, Cir., L.Ed. 553. v. Chase National Clarke 63. affidavits, that, held under a opinion on unimportant exception, same (based our we indenture, fiduciary there could and trust minor be a one fiduciary obligations, we present record) those in said relation with resultant as Miss add despite the absence of a res. had shown that she We now Eastman where, an confers here, had she not ac as indenture loss, suffered power note- cepted, received trustee the to sue for ultimately she would have a (that powers, face less than the other holders holds 50% which she plus powers her notes trust.13 interest) these obtained the offer. could via We therefore, that the de conclude, We stopped there, majority but a of this court fiduciary fendant here was a trustee with res, that, to'say there was went on since no obligations to the noteholders. therefore, as, trust, there was and that no principal Accordingly, the issues here 3. exist, trust no breach of could Eastman trustee, defendant, these: Did the as recover, a could had loss been even discharge fiduciary obligations to fail its proved. so, then, ? non-accepting If $6,000 Plaintiff, as the of notes of holder conduct, suffer as result of such a did suit, amount, in face began instant a loss ? making diversity allegations sufficient already We seen citizenship, several months after she us, the the basis of the defendant, now facts before plaintiff been dismissed Hackner v. prob 1931, could November Guaranty supra. Trust sued on She compelled liquidation. ably have the debtor’s similarly behalf herself and other sit- below, appear As will from our discussion accept uated did not noteholders who exculpatory because of the indenture, clauses offer, breach the defendant charging a defendant, showing a absent obligations its duties as a trustee presence resulting from the faith bad seeking accounting. an Both interest, adverse would not be a substantial summary defendant moved for re loss noteholder judgment. liable sulting motions, On those there liqui failure to cause from George before court the affidavits of major becomes, then, issue dation. Whitney, of'the directors of the de- one a substantial adverse interest fendant, whether such Burke, E. Arthur Vice President sug The facts record sufficient Shriver, existed. defendant, and Alfred gest existence to render erroneous Guaranty Company.11 President Vice defendant, summary court, judgment do relying The district our statement sufficiently demonstrate its existence to Morgan, v. held here Hackner directing entry of such a justify our trust, also was no no breach trust plaintiff. That a trial of judgment “law,” as matter of be found necessary appear existed, issues will recovery therefore regardless basis for following. whether or not there was accordingly loss. district court en- defendant, October summary judgment tered defendant. legally although obligated do Brooklyn Company so, 2. In one of group become Shares, Cir., F.2d Defendant also filed affidavit show v. Terminal son Thompson
ing
nothing
Murphy,
banks realized
notes of the
uncaneelled
debtor which
F.2d 38.
As
observed
Clarke
Chase
received as collateral.
*10
presence
exculpa-
suits, quasi
Bank,
rem,
the
cited
under
National
We
emphasize
tory
to
as
serves
the ex-
§
28 U.S.C.A.
Omaha
clauses
Na
Bank,
Bank v.
a trust.
tional
Federal
Reserve
istence
exculpatory
Rensselaer
discuss
the
clauses
S. R.
We
Irwin, D.C.,
921; Thomp-
252 F.
Co. v.
below.
trustee, as one of
process of
confer benefits on the
the
to
consequence, if
As
banks.
a
continued,
banks,
ob
lending
which it
the
could
notes,
begun
purchasing
the debtor’s
lending
if,
trustee,
banks
tain
as
it caused
defendant, as
the
one of
the
noted,
liquidation. Thus,
it was
as above
financial
receive a substantial
was sure to
that,
then obvious
should the holders
by Vaness
through
payment
the
benefit
offer,
$3,500,000
*11
they
appear,
Even facts as
modifica-
plan.
that
now
such a
they
fit which
obtained
however,
upon,
plan
purged
tion
so,
plan,
agreed
have
when
would
since,
plan
impropriety by
trustee
unlikely
yield
other substan-
to
them
modified,
described,
plan
have
which even
would
advantages,
thus
tial
above
liquidation:
lending
by preventing
on
benefited the
banks
could not
to them
have come
subsidiary’s
receivership.
But
consider-
even
They
well have obtained
step
$300,000
that
take.
ably
plan,
trustee did not
through
more than
receiverships
plan
prevented
sum,
(which
the facts now before us
subsidiary,
ad-
Vaness and of the
may appear
decidedly
to be
different
vantages
kind
banks of the
above
trial)
suggest
a
that
trustee
described.
may
the offer
have believed
plan, non-accepting
re-
noteholders would
could have blocked the offer
trustee
very substantially
they
ceive
less than
plan
liquida
by insisting
the debtor’s
through liquidation (which
have received
If, then,
to
tion.
the trustee
desired
compelled)
and
trustee could then have
time,
liquidation and,
to
at the same
avoid
may
that
trustee
have known that
it
avoid,
possible, benefits to itself
as
as
far
probably
personally
gain
stood
to
substan-
expense
those noteholders who
at the
banks,
advantages,
lending
tial
one of the
as
offer,
could,
accept
and
it
would not
liquida-
could not
if such
it
obtain
would,
the other
have said to Vaness and
tion then occurred.
that it would allow the
lending banks
only
through
if modified as follows:
go
to
course,
should not
Of
the courts
(a)
payment,
balance
out
The first
impractical
impose
obligations
trustee.
on a
accept
pay
needed
to
Merely vague
possible
or remote
selfish ad
banks
ing
and the Cleveland
vantages
trustee
are not sufficient
subsequent
realizations
(b)
and
debtor,
bring
prove such an adverse interest
toas
paid
non-accepting
note-
must be
question.
into
But here
his conduct
they
at least
holders until
received
advantages
seem
to have been thus
notes,14c
their
then
the face of
vague
remote.15
trustee owes his
That a
anything
paid
be
from either
loyalty entirely
should
beneficiaries undivided
un
important
lending
Such tinged by
those items to the
banks.14d
considerations of
us,
would,
truth,
seem benefits
step
on the facts before
to himself
old
and one
is an
edge
by frequent
done
the least the trustee should have
whose
cannot be
be
dulled
noteholders, use.15a
protect
non-assenting
If
the trustee
allowed its
here
whether,
judgment
factors,
although may
by any
doubted
it
to be affected
they
loyalty
14c
long
prin-
Or,
as
at least
much as
endure without
tо that
liquidation, using
ciple.”
Stone,
some
The Public
received
Influence of
figure.
Bar,
48 Harv.L.Rev.
reasonable estimated
—
Bayer
Beran,
—,
14d if the
banks were entitled
Misc.
“excess,”
Shientag
$300,000
then it would
N.Y.S.2d
Mr. Justice
said:
fiduciary
paramount
proper
provide
that
“The
has two
obli-
responsibility
loyalty.
any pay
gations:
that sum before
receive
should
* * * They
very
non-accepting note-
lie at
foundation
were made
ments
system
private
of our whole
en-
free
holders.
terprise
Simmons,
significant
and are
fresh and
Irwin v.
as
Our comments
today
560-562,
as
formulated
de-
when
* *
*
ago.
point
cades
While
is a
For defendant here is a
here.
purpose implicit
high
designated
repeatedly
in this tran-
such in
moral
as
fiduciary principle of
inden-
scendent
undivided
the indenture.
*12
Litton,
retired;
Pepper v.
the
improperly. Cf.
notes were
debtor believed
it acted
“mutually
offer would be
beneficial”
debtor;
powers
accepting
the
to
that
the
exercise
noteholders and to
If it
to
failed
would
entertained a be-
the November
1931 interest
it
it held in
trust
paid
way
presentation”
its own “be
might be to
the usual
on
lief that
inaction
such
coupons;
plan,
failing
(while
to consider
and
offer
substantial
under the
benefit
purchased
any
its benefi- notes
consequent
the retirement
harm to
the
$15,000,000,
by
obligations,
acquired
the
“not
ciaries)
then it breached its
would be
belief,
coroporation
interests,”
Sweringen
objectively
by
regardless
its
the Van
of whether
outstanding
the
say,
to
viewed,
illusory. That is
would
was
“remain
parity
the
on
debtor
obligations”
if
trial
as
trustee should be held liable15b
court
reasonably
by non-accepting
from the evidence with notes held
notehold
acceptors
infers
trustee,
its
making
at the
ers. The offer also stated that
trial
decision,
degree
(in
would receive
ad
any
to
so in
cash
moved
do
incidentally
might
dition
by
thought
interest) but would receive
that it
to Nothing
advantage
secure
substantial
some of
shares
the debtor.
to itself.
circumstances,
nothing would turn whatever was said in
offer to indicate
virtually
on
did
shares
the trustee
not in fact
that
value,
these
were
without
fact that
benefits,
inactivity
although
appears
loss
dеrive
caused
then
its
to have
Nor is
to
of its beneficiaries.
it rele- been the belief of the trustee.
great majority
benefi-
vant that
If the shares of the debtor thus offered
through
ciaries
better
such inaction.
fared
noteholders,
accepting
to the
whatever,
value
had
equal
duty
The trustee
to all
owed an
acceptance
then even after the
beneficiaries;
Trusts, s.
cf. Restatement of
enough
offer by
of the noteholders
to
right
who
suffered
Those
$15,000,000
permit
to
cancellation of
demand
them the
put
that the trustee
notes
withdrawal
all the remain-
position
they would have
financial
occupied,
e.,
(i.
ing
$7,500,000),
remaining
cash
equal
for the
had it acted
benefit
suf-
assets
must
debtor
here,
of all.
the trustee
liable
If
pay
non-accepting
ficient
all the
note-
liability
measure of its
is the loss suffered
full, for, otherwise,
stock
holders
noteholders,
by
non-accepting
not the
Consequently,
would worthless.
of-
benefits derived
the trustee.
accepting
fer of
shares
noteholders
those
ordinary wayfaring
have led the
if,
6. Even
however,
noteholder to believe
if he did not
trial, proves
that the trustee stood accept
offer, the
would
debtor’s assets
to gain substantially
(or
from its inaction
be ample
pay
him one
on
hundred cents
thought
did)
that it
the non-ac-
offer,
face,
dollar.
did
Thus
inaction,
cepting noteholders lost
any way
disclose the difficulties
good
will have
defense if
thought
which the
trustee then
were
proves
full
pertinent
that a
disclosure
non-accepting
for a
store
noteholder.
facts was made to them before the offer
defendant, however, argues
expired
December
1931. We
put
noteholders
were
notice that
holding
taken
that in all circum-
value,
shares
time
at that
lacked
be-
stances a trustee with an adverse interest
offer
them that
cause the
advised
balance-
exculpate
can
himself
disclosure
his
debtor
subsidiary
sheets of the
and its
beneficiaries; we
ruling
limit that
request.”
assume,
furnished on
We
“be
arguendo,
they
facts
appear.
case as
now
On
give
that this statement served to
record,
stands,
say
now
we cannot
all
all thе information
requisite
disclosure was made.
gleaned
would have
read
had
called
turn first
the terms of
Any
We
balance-sheets.
offer.15c
noteholder
It stated the
ing
so,
amount of notes
outstand who did
have seen that the debtor
amount
$69,000,000
of cash
apparently
available.
of assets to
$26,246,000
permitted
the Indenture
(plus
*13
hand,
(disre- gregating
$76,000,000. A
debts
approximately
on
to
all its
cash
meet
read,
the
obligations
for,
carefully
to
noteholder
garding
subordinated
who sent
the
then,
Sweringens).
would,
of those
seen
Van
notice
the balance-sheets
that,
have
Put on
facts,
have as-
on
low market
still
the basis
then
the noteholder would
of the
by
if
the
the offer and
the listed
if he refused
values of
owned
sumed
stocks
out,
paid
subsidiary,
he
worth-
all
were
the debtor’s shares were
the cash then
hand
on
accepted
debtor
if he
and that the
would be no worse off than
less
investment
subsidiary approxi-
in
shares
the offer.
the
—
$29,000,000
mately
no value.
that a
—had
correctly asserts
defendant
hand,
study
although
On
other
the subsidi-
close
of the balance-sheets
the
the
its
ary’s
were
exceed
as-
worthlessness
debts
shown to
revealed the
agree sets, yet, according
cannot
the
shares.15d
we
the balance-sheet
But
to
study
proportion
would also
of assets
was such
with defendant that
a
to debts
$27,000,000
accept
claim
open account
who did not
the debtor’s
have shown
one
nearly
subsidiary appeared
as well off
the
to be worth
would not be
offer
basis,
$15,000,000.16
balance-sheets
at
On that
who did. The debtor’s
least
one
consummated,
were the
its assets
the offer
the debtor
among
showed that
pay
the debt-
the full
subsidiary
on
to
shares of its
carried
would have sufficient assets
cost,
$15,000,000
its
approximately
outstanding
then
or’s
at
face
notes;
balance-sheet
full,
in
$29,000,000.
figure,
nota
even
Alongside this
a
debtor were liable
$4,000,000
liability,
contingent
on book-
so that
based
on
it was
its
tion advised
$19,000,000, would
subsidiary’s
estate and of
it
real
its liabilities would be
values of
by
enough
pay
than
owned
sub have
assets
more
cost
securities
to
“adjust
A noteholder
sidiary,
giving effect to
face of
notes.
without
on the
those
therefore,
thought
reasonably
might,
listed securities
ment in market values of
subsidiary,”
this connection
be no
off if he did
in
that he would
worse
owned
accept
offer.
calling
to the balance-sheet
attention
subsidiary.
Nothing in the
intimated in
offer
subsidiary’s
value of
Turning
shrinkage
balance-
that serious
way
now the
to
assets,
among
subsidiary’s
which
sheet,
showed
were
real estate assets of
cost,
trustee,
approxi-
filed
according
the affidavits
at
“listed stocks” carried
ade-
$37,200,000.
by it,
lively
A
showed
had
No
footnote
then
a
awareness.
mately
$23,-
stocks,
quate
given
warning
this fact was
pledged to secure
that these
notations,
30, 1929,
subsidiary’s
500,000 note,
September
balance-
car-
$93,000,000;
sheets,
building
were
approximately
land and
been worth
$38,000,-
appraisals.
or on the
September
approximately
ried at cost
basis of
and,
(the
September
True,
was an
balance-sheet
that on
attached
statement,
months
first nine
balance-sheet)
had a mar-
income
for the
date of
$8,200,-
for that
net loss
(approximately)
showed a
ket
which
value
period (after
depreciation)
deducting
that these se-
000. Here was a disclosure
$1,633,000.
(re-
values,
This loss
approximately
curities,
at then market
worth
operating
$29,000,000
sulting
than
from an excess
ex-
their
approximately
less
charges
rentals
penses, taxes and fixed
over
subsidiary’s
total assets were
cost.
$103,000,000,
received)
indicate that there
approximately
so
would serve to
shown as
improved
$29,000,000 shrinkage
earnings
lack of
on the
that, deducting the
was a
net
stocks,
subsidiary’s
pre-
ap-
subsidiary
assets
real estate of
listed
$74,000,000. Against
ceding
peared
nine
But that fact would
about
months.
15d making
liabilities,
contention,
included
defend
still
$65,000,000
be assets
is driven
admit that
the offer was
of about
ant
(in-
$76,000,000
misleading
about
liabilities
included an offer
cover
since
value,
cluding
liability
hopelessly
unac
shares
without
open
owing
debtor).
companied
explanation of that
account
a clear
figures
open
defendant,
indicated
the facts before
Those
fact. The
nothing
us,
$23,000,-
account claim was worth about
did
to aid the
attempt
shall
We
nicer
discover that fact.
000.
analysis
here
figure
but,
conservative,
$37,200,000, repre
in order to
If
senting
open
stocks,
assume
claim
the listed
were deducted
account
$23,500,-
appeared,
balance-sheet,
assets,
from the
but the
entire
$15,000,000.
least
note secured
stocks were
at
worth
record, nothing
present
like
On the
that so
suggest
seem
not alone
sufficient
If, then,
plain-
made.
disclosure was
consisted
subsidiary’s
assets
much of
tiff,
trial, proves
defendant
seriously shrunk
had so
of real estate
any degree
$27,000,-
actuated
a substan-
was
tial
reduce the value
value as to
interest and the defendant fails
adverse
owing to the debtor
open
claim
account
adequate
more
dis-
to adduce evidence of a
$11,000,000, e.,
sum
than,
i.
say,
less
offer,
closure
contained
than that
yield
sufficient to
statement, plain-
balance-sheets and income
outstanding if
would be
*14
tiff must win.
(even
out
offer
were carried
transaction
held
would be
assuming
debtor
Had
1931caused
the trustee in
$4,000,000 contingent
fully liable on
liquidation
liquidation,
debtor’s
subsidiary (so
liability).
more
affidavits
defendant’s
us,
Accordingly,
before
the facts now
suggest)
followed.
would soon have
note-
adequate
to a
there was no
disclosure
substantial
might
There
resulted
have
opinion,
he
that,
if
the trustee’s
recovery
open
holder
claim
account
note-
accept
offer and other
subsidiary.
arguable
did not
While it is
accept
us,
sufficient amount
recovery,
did
in a
holders
facts
that
would| perhaps
before
$15,000,000,in all
the note issue to
yielded
reduce
have
note-
very
which,
recover
substan-
probability would
together
he
with
holders an amount
accepted.
he
Nor
tially
than if he
was
participation
less
then
their
in the cash assets
liquidation
presented
of the debtor
hands,
equalled
told that
debtor’s
in the
17
but that
an alternative to the offer
plan, might
it
offered under
liquidation
opinion of the trus-
50%,
given them in excess of
well have
tee,
advantageous
less
would be somewhat
apparently the
did
although
trustee
far
acceptance of
offer but
to him than
recovery might have
think so. What that
advantageous
rejection. Nor
than its
been, no
can estimate with
one now
syllable
suggest
was
that the trus-
But,
there a
high
degree
accuracy.
defend
had
group
tee
one
of banks which
of a
bring
wrongfully
ant
failed to
about
parent,
large
loaned
sums to the
itself of the
liquidation, it cannot avail
subsidiary; that,
Vaness, and to the debtor’s
making that estima
resulting difficulty of
banks,
plan,
under the offer
those
wrongdoer
tion. “The
is not entitled
trustee,
reap
including
tial
might
substan- complain
damages
he
that”
“cannot
advantages
never
which
precision
measured
the exactness and
through
liquidated
obtain if the debtor were
possible
case,
if the
which
that would be
begun;
that,
proceedings then
inter
making,
responsible
he
alone is
alia,
purchased
notes
under the offer otherwise,”
uncertainty
for “the risk of the
plan which were not
he cancelled would
wrongdoer in
upon the
should be thrown
”
* * *
be received
those banks as
party.
collateral.
injured
stead of
Parch
Co. v. Paterson
Story Parchment
We think
the circumstances
555,
Co.,
563,
565,
51
282 U.S.
ment
(assuming that the
had
a substan
522
equity,
sitting
merely declaratory
in
in
suit
would
federal court
of the rule which
diversity of citi-
jurisdiction rests on
obtain even in the
a fed-
where
of such
absence
and,
apply
zenship,
governs
statutes
usu-
eral
and which
must
state
statute
therefore
ally,
decisions,
equity
not do
yet it need
so in
well as
state
at law.29
respect
equitable
“remedial
destroy
Tompkins
Erie R.
Co. v.
came
28
begin-
rights,
rights.”
As to substantive
exception
Tyson,
v.
created
Swift
after Rob-
twenty-four years
ning in
equity
1842—
and did
suits.30
so both
law and
Tyson,
Campbell
16
inson v.
Swift v.
not,
to,
purport
—with
But
and it did
did
held,
1,
until
865,
L.Ed.
Court
Pet.
10
way
wholly
alter
distinct doctrine
courts,
diversity
recently,
federal
relating
equitable
rights,”31
“remedial
cases,
except
decisions
must
follow state
.
Act,
Judiciary
which rests on
11 of the
§
state statute
pertinent
where
is
conferring equi-
41(1),
28
now
U.S.C.A. §
question
“general
law”
is
and where
ty powers on the federal
There
courts.32
Tyson
a suit
Swift
at
involved.
v.
today,
no doubt that
as before Erie
can be
law,
founded
an
ruling
and its
Tompkins,
sitting
R. Co. v.
federal court
interpretation
so-called Rules
instance,
will,
given state
refuse
in a
Act,
Judiciary
34
being
appoint
Decision
a receiver
suit of
un-
§
at
1789,
28
although
Act of
now
U.S.C.A.
That
secured creditor
the statute
§
action,33
section,
terms,
applies
to suits
that state authorizes
such an
law;
equitable
grant
lessee
held
be will
relief to a
it has been
at common
Bank,
161,
777,
equity
rights
U.S.
83 L.
would
307
59 S.Ct.
a
enforce;
which
court
1184;
recognise
others,
Atlas Life Ins.
v. South
re-
Ed.
ern, Inc.,
Co.
all
657,
563,
denied,
equitable
306
83
U.S.
59 S.Ct.
claims
and such
lief
L.Ed. 987.
as mere
and
nullities,
are
be considered
32
construction,
Atlas
I.
there-
Life Ins. Co. v. W.
at law. A
Inc.,
568,
practice,
Southern,
563,
adopt
59 S.
fore,
U.S.
state
306
657,
court,
659,
extent,
987,
83 L.Ed.
once extin-
Ct.
in all
guish,
referring
section,
states,
“This
said:
the exercise
perpetuated
24(1)
provision
jurisdiction.”
equitable
in §
Code,
41(1),
Camp
28
progeny
28
28
§
v.
the Judicial
U.S.C.
of Robinson
41(1),
g.,
legion. See,
which declares
§
States
U.S.C.A.
e.
United
bell
jurisdiction
Wheat,
115,
Howland,
108,
district
courts
shall have
4
4 L.Ed.
v.
‘jurisdiction’
648, 658,
Zacharie,
526; Boyle
thus
of such suits.
Pet.
v.
6
Story,
Livingston
532;
to enter-
Pet.
federal courts
9
conferred
v.
8 L.Ed.
equity
authority
Scott,
635,
255;
to ad-
632,
tain suits
is an
v.
9 L.Ed.
Neves
equity
principles
140; Payne
268, 272,
minister
suits
14 L.Ed.
How.
13
judicial
system
260;
425, 430,
Hook,
remedies
19 L.Ed.
Wall.
v.
Kirby
being
admin-
devised and was
Lake
& M. R.
v.
Shore
S.
Chancery
English
569;
130,
430,
istered
Court
S.Ct.
30 L.Ed.
U.S.
separation
209, 210,
two
Sawyer,
at the
time
re
Payne
Hook,
Mississippi
402;
7 Wall.
countries.
31 L.Ed.
S.Ct.
260;
Sawyer,
202, 204,
In re
124 U.
Cohn,
L.Ed.
Mills
14 S.
U.S.
209, 210,
482, 486, 487,
Guffey
Smith,
1052;
8 S.Ct.
S.
L.Ed.
Ct.
Rodgers,
402;
Matthews v.
59 L.
U.S.
35 S.Ct.
Pusey
L.
856;
U.S.
Hann
Co. v.
Jones
Ed.
sen,
Washington,
U.
Ed.
Gordon v.
*19
584, 587,
30, 36,
79 L.Ed.
55 S.Ct.
763;
S.
Henrietta Mills v. Rutherford
270,
statute does
121, 127,
This clause of the
County,
281 U.S.
50 S.Ct.
jurisdiction
district
737;
not define
v. W.
Atlas
Life Co.
L.Ed.
Ins.
74
courts,
Inc.,
563, 568,
of
Southern,
as federal
the sense
courts
59
306 U.S.
I.
power
authority
Sprague
and de-
657,
hear
987;
Ti
their
v.
83 L.Ed.
S.Ct.
body
prescribes
cide,
161, 164,
Bank,
doctrine
but
of
59
U.S.
Nat.
777,
conic
307
guide
1184;
en-
their decisions and
v.
is to
cf. Mason
83 L.Ed.
S.Ct.
558,
States,
545, 557,
to determine whether
43
them
able
U.S.
United
260
given
district
200,
instance a suit of which a
52á cisions, that, saying though regarding equitable (Cit- conduct of defendant.” 37 ing, alia, themselves statutes of Kirby as bound state inter case.) limitations, equity federal will nev- courts That federal court inde- doctrine of ertheless, equitable when “consonant with pendence equitable concerning “remedial principles,”36 adopt as their own a local rights” apart of is distinct and from that statute applicable of similar limitations v, Tyson, Swift which v. Erie R. Co. equitable аction; when the causes Tompkins over-ruled, clearly appears from equitable jurisdiction the federal court Brandéis, the fact Mr. the arch Justice law, is concurrent with that or when enemy enthusiastically Tyson, of Swift v. suit brought eq- in legal right, aid endorsed the in rights” “remedial doctrine uity remedy will legal withhold its if the Pusey Hanssen, & 261 U.S. Co. v. Jones right statute; is barred the local and 491, 763,38 454, 67 S.Ct. L.Ed. equity jurisdiction where the is ex- Smith, approval Guffey cited with v. clusive, state barring statutes actions at 856, 101, 114, 526, 59 L.Ed. U.S. S.Ct. law, inapplicable. discussion, In its upholding leading one of cases the Court made following significant who, in doctrine.39 Mr.. Holmes Justice (309 288, 531, comment U.S. S.Ct. 349, Co., 215 Kuhn v. Coal U.S. Fairmont 754, 1): L.Ed. note “But federal courts sharp- 370, 30 S.Ct. 54 L.Ed. equity always held themselves years Tyson, ly criticized v. five Swift which, bound to follow local in statutes Smith, Guffey later concurred in v. ordinary circumstances, adopt eight years concurred after that decision apply by analogy. re- each case Hanssen, supra.40 Pusey & Co. v. in Jones fusal has placed upon ground ob- That Brandéis no wise Mr. Justice special equitable doctrines, in- making jected “remedial to the extension * ** equitable stat- apply the statute. limitations rights” doctrine state opinion, equity Federal courts his appears have not consid- utes York, City ered local of New obligated apply Court, themselves in Benedict 476, 478, 321, 327, 328, statutes 39 S.Ct. limitations when 250 U.S. they conflict n with Kirby ap- equitable where where he cited principles, as L.Ed. impos- approval.41 We find it ply, ignorance case irrespective plaintiff’s speaking sible to believe in- rights his becatise fraud 121, 127, 128, 36Emphasis 50 S.Ct. 74 L.Ed. S. added. 37Emphasis where the distinction between sub- added. equitable Pusey Hanssen, “remedial” stantive Co. v. Jones state remedial stat- creditor, was reiterated who filed a bill in unsecured an again ignored. seeking appointment ute was a federal court 41There, corporate debtor, in a suit to enforce an ex- re- for a of a receiver press trust, expressly he said: “Under the law of statute which
lied on
state
alleged
Court,
of action
New York
cause
authorized such an action.
subject, if not
to the
why
would have been
explaining
must be re-
such relief
(New
six-yеar
limitations
despite
statute,
statute
reviewed
state
fused
Procedure,
382),
§
gave
Code
Civil
previous
York
a master-
decisions and
ten-year
limita-
statute of
exposition
then to
between
of the distinction
ful
(New
Code of Civil Proce-
equitable
rights.
tions
dure,
York
remedial
substantive
governing
388),
bills for relief
Shapiro
Wilgus,
§
287 U.S.
also
See
cog-
of the existence of a trust
348, 356,
cases
77 L.Ed.
53 S.Ct.
of common law.
Brandéis, J.,
nizable
the courts
con-
A.L.R.
in which
Executors, 18 Wall.
Boorman’s
Clarke v.
curred.
If
of 1874
525 v. Kirby with to the law Court, law and not reference to over-rule lie intended district Pusey in which federal R. state & S. Co. Lake Shore M. merely v. Co. case in Erie R. court was located. Thus that v. Hanssen Co. Jones Tompkins substantive applied rights rule nowhere mentions those Tompkins which embody. equity involved in cases. cases doctrine which when or the consider, and no occasion Court had be- the distinction to observe Failure discuss, not, therefore, opinion the question did Tyson v. tween that the .Swift doctrine whether, rights be the substantive make er- defendant to doctrine leads decisions, the ing according to settled state New that in Ruhlin v. suggestion roneous grant equitable relief should federal court Co., 202, 304 58 York 860, S.Ct. Life Ins. U.S. granted in the kind other than (decided 82 1290 a week after L.Ed. un Accordingly, left state court.42 court, by im- Tompkins) Erie v. R. Co. equitable as to touched the settled doctrine Tompkins plication, case held that the and, quеstion rights; remedial as no precedential cases value of obliterated Ruhlin, that limitations was involved Kirby therefore remarks like and that matter case did not even intimate*that the of the Chief Russell the later case Justice regarded longer to be limitations was best, or, error, at v. Todd rights.48 is affecting as significant remedial “merely conspectus” an historical case, after the Ruhlin prece- recalling superfluously abandoned Bank, Court, Sprague v. Ticonic Nat. case, dents. Ruhlin va- the court 777, 307 59 83 L.Ed. U.S. S.Ct. because, judgment cated a and remanded approval 1184, cited Robinson v. a suit in the lower Tyson, equity, federal court had, Campbell es, subsequent other cas “in- similar construed an la Swift v.. later, in Maryland and that v. contestability clause” Kelleam of a insurance life Co., Casualty 377,381, 595, 312 policy “general” U.S. 61 S.Ct. according to or “federal” 109; 169, 176, 85 true 61 S.Ct. L.Ed. While it federal West statute. equity Co., sitting in v. American Tel. & U.S. bound Tel. 311 courts 223, 139, 236, 179, (Kirby 61 S.Ct. 85 L.Ed. state v. statutes limitations 956; Co., York 132 A.L.R. Stoner v. Now Lake & M. S. R. 120 U.S. Shore Co., 336, 130, 464, 569), they are, 430, Life Ins. 311 U.S. 61 S.Ct. L.Ed. 7 S.Ct. 30 284; McCoach, ordinary eireumstano.es, guided 85 L.Ed. Griffin v. 313 under 498, 1481, determining 1023, L.Ed. U.S. 61 S.Ct. 85 them in tlioir on stale action 1462; Lozenge 201, (Godden Kimmell, 134 A.L.R. Co. v. Pecheur claims U.S. Candy 606, 210, 431; Co., Philippe, Philippi v. National 25 L.Ed. v. U.S. 1181, 1103; 336; 853, 151, S.Ct. 86 L.Ed. and Meredith U.S. S.Ct. 29 L.Ed. Haven, 228, Smith, 231, v. Winter 04 S.Ct. 149 U.S. U.S. Pearsall v. 833, 13 S.Ct. Alsop 713; Riker, 155 37 L.Ed. v. D’Oench, 448, 162, 218). Duhme & Co. v. Federal U.S. 15 S.Ct. 39 L.Ed. Deposit Corp., 447, Compare Tns. 315 U.S. Sullivan v. Portland & Kenne 684, 950, Co., S.Ct. 86 L.Ed. suit at bec R. 94 U.S. 24 L.Ed. law, plaintiff the Court held Erie R. v. Co. Between 1892 and 1905 did rights Tompkins applicable nothing alleged his was not because ex enforce cept corporation in 1893 a he was federal to commence suit which the suing diligence pro- prosecute. did His lack under a federal statute which corpo- wholly unoxcused; vided that all suits which that both the nature par party ration was a “shall deemed to claim situation of the diligence. ties the United was such as to call for arise the laws majority The ing did not lower courts err in Stales.” The of the Court did sustain grounds not consider defense of laches.” alternative Jackson, decision noted Justice same is true New York Life Mr. Tompkins e., Jackson, R. did i. that Erie Co. v. Ins. Co. v. S. jurisdiction apply 1329; Ct. 82 L.Ed. Rosenthal upon diversity citizenship New York Life Ins. founded 304 U.S. equi- perhaps Kellogg 1330; dеfense of L.Ed. because the S.Ct. Co. estoppel might table “an considered National Biscuit 305 U.S. although 73; Roy equity matter” action was 59 alty S.Ct. Wichita majority City Bank, Court law. That National Co. v. 306 U. rely upon relating 107; 515; did not the doctrine S. 83 L.Ed. “equitable Dunlap, es- when to remedial Cities Oil 308 U. Service Co. toppel” involved is no indication S. Fi delity Field, it obliterated doctrine. Union Trust Co. v. *22 526’ 899, followed is 85 not for regarded L.Ed. cited to be the Court as “concurrent” discussion, Ettel- Pusey purposes & Hanssen.43 under even Co. v. here Jones Co., Metropolitan beneficiary son v. Life Insurance can sue law.46 Doubt- at 176, 163, impos- 188, 87 L.Ed. less a trustee may 317 make contract U.S. 63 S.Ct. a ing upon not ob- him legal obligations teaches new Rules have may But he at be sued on side”. actions the “law literated distinction between qua trustee, equity. obligations, presumably his are law and suits in courts, equitable purely still in the federal equity jurisdiction It be that may modify them no matter how much he con not is the instant case exclusive by contract. is, must be determined Which current. is, however, deci moment of no but federal New York is “jurisdiction” here equity jurisdiction whether federal is sions as to the Kirby exclusively equitable.47 For adoption of existing at the time of the (cited approval v. in Benedict enactment case Constitution or of the supra, date, City York, v. of New and Russell
Judiciary At that Act of 1789.44 ah. Todd, ju supra) of trust was a case of concurrent against for breach a trustee action risdiction, yet if the the Court held within the exclusive seems to have been prevented equity.45 it would defendant’s misconduct And cognizance of rights, plaintiff learning suit New “jurisdiction” such a his seem money Ass’n, Mahogany 43 does not trustee render & v. Yates Black See, jurisdiction g., Cir., 227, (certiorari concurrent. e. 233 3 Taylor 233, Benham, 672, 76, 5 How. 12 L.Ed. 87 L. v. U.S. 63 S.Ct. denied 317 130; Bay Rogers, C.C., 539) Gas Co. rule State v. Court said: Ed. “The Tompkins being 557, 560, 147 F. 561. determin- R. Co. v. Erie says 197, Trusts, rights, The Restatement there is still § ative substantial * * * “except 198, preserved § as stated reme- uniform basis * * * exclusively equitable”; equitable granting dies in cases remedies rights in- described 198 do not § arisen remedies in which substantive “compel suit to the trustee to re- clude a state law.” Cohn, 44 g., Mississippi See, dress a breaсh of trust” which is includ- Mills v. e. ed, “equitable” remedy (c); 75, 202, 206, in § 199 L.Ed. as 14 U.S. S.Ct. 37 150 Inc., Exploration, breach of trust as a 1052; § v. 201 defines a Petroleum duty” “any Commission, trustee U.S. violation which the 304 Public Service beneficiary.” 1294; 209, 217, 834, “owes to the S.Ct. 82 L.Ed. 58 Vivian, Cir., 848, 280, Todd, 286, 2 F. In Miles v. 79 60 S. v. 309 U.S. Russell negligence. guilty 527, 754; trustee was found v. St. L.Ed. Stratton Ct. 84 equity jurisdiction 533, Co., 530, held Court R. 284 U.S. Louis S. W. duty 465; 222, was concur- as to such a breach v. 76 52 S.Ct. Rodgers, L.Ed. Matthews 217, 521, 529, rent and that therefore statute U.S. 52 284 S.Ct. especially apply, Washington, 447; limitations would L.Ed. 76 Gordon v. slept plaintiff long 584, 37, 30, had his 55 L.Ed. U.S. S.Ct. 79 295 having 1282; so. no excuse done showed Waterman v. Canal-Louisiana 43, Co., 33, Farmers’ Loan & Trust In Frismuth v. U.S. 30 Bank 215 Cir., 169, again Sprague 10, 80; 2 107 F. action Ti L.Ed. v. 54 S.Ct. negligence 161, 164, Bank, conic Nat. 1184; Here the basis the action trustee. S.Ct. 83 L.Ed. State 59 knowing negligence Wheeling Pennsylvania failure to act & Belmont v. conflicting 518, 563, in- Bridge L.Ed. where 14 13 How. slept Payne 425, 430, Hook, has on her 249,; terest 7 Wall. v. rights. Equity 260; Prac L.Ed. cf. Rules 19 Wheat, exclusively equi 47 tice, xvii, if the suit is Rule xxxiii. That 7 Congress change cognizance will, course, federal court Of can table exist, jurisdiction; Sprague equitable equity scope considerations dis when specifically appli Bank, supra. regard state statute Nat. v. Ticonic gee Halsbury’s England- thereto, 45 cases Laws of see cited Russell 3 cable U,S. page ed.) Todd, (2d at S.Ct. v. n page 531, Hillman, L.Ed. note such- U. also Alexander v. See Alsop Riker, 192;, 222, 239, U.S. 15 S. 56 S.Ct. S. 218; Jamieson, L.Ed. Patterson v. He U.S. Clews Ct. witt, 1183; Pomeroy, L.Ed. Kelley Boettcher, Jurisdiction, . Equity 654-687 85 F. fact that claim The mere
527
plaintiff’s
dis-
ignorance
York statute of limitations should be
rights or
of his
equity
regarded. Accordingly,
plaintiff,
(b)
whether the
becoming
after
aware
48a
concurrent,
jurisdiction
slept
or
his rights,
is exclusive
them
court,
guilty
is
where
defendant
true,
contends,
Nor is it
as defendant
“inequitable
causing plaintiff’s
of
ignorance
conduct”
that
Kirby
applied
the federal courts have
rights,
of his
will
the stat-
toll
doctrine
in order
shorten
ute.
Russell
all the cases cited in
v.
the time within which the claim is barred
Todd, which,
jurisdic-
the equity
where
plaintiff delays
because a
with-
his suit
concurrent,
applied
tion was
the Court
opinion
out
Kirby
excuse. The
statute,48
local limitations
(a)
either
there case itself shows that the rule has not been
showing
inequita-
was no
whatever of
so limited
only defendants,
as to favor
hut
accounting
blе conduct
defendant
works
ways.49
both
See
Van
also
Devan-
plicit applicable state
portions
chargeable
in that
but on New York
opinion
exclusively equitable cognizance.”
plaintiff,
conspiracy
be
all the facts
the
known,
alleged
dent. But
made
stated
quisition
held the
counting
* * *
257
laches.
367,
25 L.Ed.
tiff’s
v.
799;
the defendant” and the
F.2d
Bank
mings,
23 L.Ed.
171,
L.Ed.
L.Ed.
U.S. 201. 25 L.Ed.
Ed.
830,
man’s
S.
48a
In Shultz v. Manufacturers &
48
Henrici,
applicable
436.
court
Wilson v.
831.
in Roos v. Texas
evidence,
175.
42 L.Ed.
Wood v.
“ignorance
explicit
v. St. Louis
901;
315;
Co., Cir.,
718:
Ex’rs,
or
169
also said that
wrongdoing. True,
connection,
fraud or
448, 449,
court held
of our
New
435; Wagner
738; Godfrey
807;
12 L.Ed.
24
there was no
reasonably
“was
with the
Stearns v.
Carrol v.
U.S.
purely equitable relief,” and,
Curtis, Receiver,
stock
there the trial
was
L.Ed. 944: Baker v. Cum
other relief for an
18
681;
York
findings,
“no
Koontz,
Carpenter,
Hughes
or about
fraud in
711;
opinion
ready
a suit for
Wall.
189, 206,
of his
clearly chargeable
13 S.Ct.
inequitable
431;
Godden
928;
Dispatch Co.,
findings,
ground
limitations statute to
relied
grossest
amply
42
decisions,
statute
should
Green,
Metropolitan
Page,
F.2d
which a
493, 505, 507,
v.
7 Granch
v.
v.
showing
were in
opinion
See
Russell v. Todd
Clarke v. Boor
plaintiff’s
the time of the
defendant’s ac-
not on federal
Baird,
Terry,
accept
Reed,
decedent
101 U.S.
944,
v.
supported
207,
damages,
our
92
delay,
7 How.
also
Kimmel,
conduct of
court had
Cir.,
a suit of
U.S.
37 L.Ed.
majority
discloses
18
Traders
10
7 How.
97 U.S.
opinion
610.
Connly,
known,
an ex-
As the
Speidel
alleged
149
shown
202,
plain-
dece-
S.Ct.
way
Cir.,
Nat.
819,
509,
ac-
we
30
U.
99
21
L.
3
D.C.
Roe, C.C.,
case in accordance
bid its maintenance
limitations at
589-591;
make it
ute,
chancellor will not be
tion of a
is that
'stances,
tions
riod than
We said that
rule
act
ley
by,
tions
by treating
character.
fect of
Friedman,
176,
Judge
did
might
shows,
we held
ant
fraudulent
5
or in
applies
feel bound
fraud.
necessary
31
are
Weyerhaeuser
moneys
Cohens v.
Cf.
L.Ed.
the doctrine of
S.Ct.
equity.
but that
laches
time fixed
could not be
blit will
New
very substantially
184,
equity,
Cooper
relating
bar
condition it.”
Sanborn said: “In the
doctrine
or
analogy
Boettcher,
the facts
the statute
inequitable
a suit
courts of
paid
300,
299 F.
run until
that,
257; Taylor
suit
Chiswell v.
before,
recovery
46 S.Ct.
Union
2
York
Virginia,
* * *
extraordinary
frequently
1 F.
As the record in
misrepresentations,
they usually
i.
the suit
determine
55 L.Ed.
Cir.,
out
law;
them hero whore the facts
aftеr a
v.
e.,
it was
fixed
to,
under'
Hill,
equity
Hoyt,
deprived
were such that
decision,
Mutual Life Ins. Co. v.
and will
actions at
a suit for
because of defendant’s
statute
laches,
1.
more,
fairly
adequate
may
ing
purely
will
insure the
academic and lack all
all,
representation
may,
practical
significance
on behalf of
note-
all
unless
other
ever,
C.C.D.Neb.,
283;
plaintiff
District,
17 F.
this should be noted:
John
White, Cir.,
39 F.2d
does not need to
son v.
include
claims
approval
ju
with
in Russell
others in order
to maintain
Cited
vl
federal
Todd, supra.
As
suit
within
risdiction.
comes
alleges
23(a)
(3),
judgment
first
Plaintiff
when
Rule
so that
will
she
judicata
action
learned of
cause of
she tried
not be
as to
res
Guaranty
intervene,
Hackner
who
to intervene in
no neces
do
attempted
sity
intervention,
searching inquiry concerning
That
Trust Co.
theory,
although
adequacy
representation
based
her
erroneous
enough to rebut
laches. Southern
others in the
class.
483, 490,
Bogert,
defendant
Co.
U.S.
have other de-
Pacific
1099;
against specific
63 L.Ed.
39 S.Ct.
cf.
fenses
intervenors.
Guaranty
Co.,
Kin-
York
& H. R. R. Co. v.
In Hackner
New
ney,
Cent.
Trust
346, 43
260 U.S.
S.Ct.
Hackner and the
294;
Memphis
plaintiffs (except
United States v.
other noteholder
York
plaintiff)
62, 68,
Oil
288 U.S.
who was dismissed as
had ac-
Cotton
619; Maty
cepted
offer, alleging
77 L.Ed.
v. Gras-
had
misrepresentations
been induced
selli Chemical
thereby
their
*25
begun
believing
plaintiff’s suit
Cir.,
States, 4
United
Marsh v.
although they
their
were not before
R.
behalf
330; Newgass
& D.
v. Atlantic
C.C.,
such
the court. To hold that
noteholders
Dobson v. Simon
716:
F.
time,
cannot,
lapse
as to
have the bene
ton,
In the case
271-273.55
N.C.
fit, by intervention,
be
of the institution of
cited,
court said: “It
last
by plaintiff
law,
the suit
to
anomaly
would be
convert
strange
in
it should al
Since,
trap.
into a
class suit
brought
party,
the Rule
in a
to
for a
be
low
action
judgment
not
rely
(3), a
will
encouraged
under clause
to
he should thus be
and
judicata for
against
res
it,
legal
or
upon
other
and not seek
redress
intervene,
suggest
class who do not
it,
yet
in
came,
when he
wise than
and
if,
trial,
against
action,
debt,
after
finds
prove
the court
his
to
his
the course of
defendant, appropriate steps
fund,
taken
to
him hav
share in the
treat
and
reliance,
notify
to
all such noteholders to intervene
ing,
lapse
lost
(if
so),
have
done
not
theretofore
time-,
bringing
happening
judgment
only
to
in
entered
favor
will
the action.
law
mislead —it
those who do so within
time.
tolerate,
a reasonable
just
faithful,
is
and will
and
Those who do intervene will be no more
uphold,
practice
much
rule of
less
by lapse
plaintiff,
barred
of time than
injustice
absurdity.”
works such
and
We
prove special
unless defendant can
facts
apposite
think those comments arc
here.
affecting them.
Independence
agree with Deckert v.
We
D.C.,
Reversed and remanded.
Corp.,
F.Supp.
Shares
—seemingly
only
discussing
case
HAND,
Judge
AUGUSTUS
Circuit
N.
problem,
quoted
one which is
cited and
(dissenting).
Moore,
approval
apparent
in
Fed
57—-
Upon
Practice,
Supplement,
reconsideration
p.
this case on
eral
petition
differentiation,
rehearing, I
23(a)
have become
no
Rule
makes
(2)
(3),
ing
requisite
jurisdictional
amount,
held
no
there was
dif-
plaintiffs
respect.
in this
ference
the elaims of the several
could
aggregated.
(relating
The same discussion
in
he
Mexico
Cf. Central
24)
Eight
Cir.,
appears
Munch,
tervention
under
Power
Rule
Co. v.
Supplement,
page
Moore’s
F.2d
For
Rules
af-
jurisdictionаl
Earlier,
requirements
case,
the Deckert
fect
basic
by
before
Moore,
fixed
in his
But
no
comments on dismissal
statute.
there
23(c),
changes affecting
class actions
Rule
similar
inhibitions
under
had
as to
ex
pressed
(Volume
through
lapse
time,
page
a different view
loss of
11);
60(b).
however,
Sup
note
Rule
his 1943
indicated
page
plement,
84, in his
annotation
54a
complaint
See
51a.
footnote
comment,
earlier
he makes a cross-refer
suit,
brought
accepting
in that
note-
his
ence to
more recent discussion of the
prayed
holders,
relief on behalf of all
Deckert ease.
similarly
others
situated.
interven-
Her
states,
As
that decision
Moore
was re-
adopted
tion should be deemed to llave
grounds”
Pennsylva-
“on other
versed
prayer
non-accepting
vis a vis
note-
Insurances,
etc.,
Deckert,
nia
Co.
holders.
There,
Notes
said holders of excess, not, senting payment such after notes and of all full said began, liquidation such ex- withdraw Van interest thereon accrued remains paid the noteholders first Sweringens, cess until defi- extent pay ciency in full. over said notes shall, However, time pro-rata from time to distribution Trustee interpreta- below, moneys note the effect of an notes all received of said holders permit Sweringens pursuant withdrawal tion which Van to such beginning liquidation. payment liquidation even account obligations.” of such 400,000 ties,” Alleghany the debtor shares of Cor- a receiver of appointment poration. property, or major part of its the debtor declaration that judicial bankrupt approached Octobеr time or more If one or insolvent. payment in for the first semi-annual occurred, agreed that it was of such events notes, stallment on the it faced written re- “may, and the trustee quest serious Neither nor difficulties. the debtor of at least of the holders parent Vaness had funds available out- principal the notes then amount of pay Moreover, that interest. because of a all principal standing, shall, declare the further decline in the market value of the due and outstanding to the notes then 900,000 Alleghany stock, the value upon any such payable immediately, shares, “segre constituting Alleghany gated the same shall become declaration securities,” “assigned assets” and anything in payable immediately, due and i.e., $15,000,000, threatened to sink below contained this Indenture or in the notes requisite the notes. In order to notwithstanding.” Upon such contrary meet those and also difficulties notes, maturity an acceleration grave problems confronting financial pay to the trustee the debtor was subsidiary, group Vaness the debtor’s so, If did not do due thereon. amount (which of banks we shall call the name and trustee, in its own then “the
defendant
$606,000 i.e., ceive outstanding the balance of left and that such antici — $106,000 applied pated interest realization $500,000 of at least would —to Morgan, paid, their loans. pro-rata, banks, on behalf the be as lending banks, $106,000, notes, received that but holders non-accepting (for appearing record) reasons not banks, note-holders.10 Since matters expend purp out, allowed it for other Vaness turned pledgee-holders became Accordingly, lending banks ac notes, about of those oses.9 tually 92% $106,000 apparently received that, anticipated follows if the minimum of possibly $500,000 could not have received had had been realized, banks liquidation proceed the trustee instituted received have reali 92% ings against zation, $460,000, debtor while non-accepting have merely received plan might yielded But offer $40,000, i.e., less than of the face of $106,000. For, , the banks than far more their notes. course, no the offer was one knew when made, many noteholders wоuld how fact, because of the subsequent diffi- of, accept. say, $3,500,000, Had the holders culties of the subsidiary, nothing was there- then, accept, $7,500,000, out of the failed paid on any of the outstanding notes cash, $1,750,- would have left except payment interest in 1932. (after paying of which Cleveland The non-accepting noteholders thus never lending banks) banks would re- received for their investment anything $1,250,000. $106,000 ceived not other up interest to, including, November (i.e., interest for two say Nor can we that the trustee did not and one-half years) nothing whatso- participa in addition to then believe principal ever on of their notes. $7,500,000, tion some would receive other banks substantial ad April 1940, three of the noteholders plan.9a vantages For, the offer from accepted who at(the began the offer an action made, offer was time when the against the defendant and Morgan, charg- banks, including trustee, apparent were ing fraud misrepresentation. Miss ly liquidation confident proceedings York, bar, the suit now at against the debtor did thereby not occur and subsequently tried to intervene in that ac- insolvency against proceedings the subsi tion as party plaintiff, but her interven- diary prevented, the debtor would tion was denied. Hackner Guaranty subsequently (on open realize 2Co., account Trust F.2d certiorari claim subsidiary) substantial denied 313 they anticipated sum. That that this reali 1520. For requisite lack claims in the $500,000 zation appears would be at least amount, jurisdictional suit also dis- loan fact that the missed original Cleveland as to the plaintiffs, but it
the loan refuse the precarious the $7,500,000 at least defendant, banks, plan, would re lending under the banks. The by those it made to $1,250,000 to them on it ceive not available position: If occupied therefore, dual fact, liquidation. they did the debtor’s powers as steps, using its failed to take plan. $106,000 the stop- under Also by receive trustee, protect noteholders plan, those the de- knew note-buying, trustee process of ping likelihood become ad- banks would all reap marked certainly would fendant the uncancelled notes14 circumstances, holders of we shall some as vantage. In such did, they would subse if Inden- see, exculpatory clauses of anticipated quently share the then lia- from serve a shield as could ture $500,000. Also, realization of minimum a loss who sustained bility note-holders appears to have believed that steps. trustee failure to take because plan liquidation substitution offer protected because trustee would the Nor prevent receiverships debtor position of the dual occupy it came bankruptcy of and the debtor’s or Vaness October participation (through its plan subsidiary; so, if benefit faith, for the good all loan) in 1930 bank preventing injurious effects banks expectation the motives, with no best of comp banks to those loans those between sharp would ever arise conflict and its the noteholders best interests of anies.14a conflict oc- own self-interest. Once defendant, that it which denies The obligation either curred, defendant had derive, derived, any from or stood to benefits self-in- disregard what serve alternative, argues, that if plan, trustee. resign or to as terest potential it received such actual or but, resign benefits, ample gave consideration there defendant did not since, for, plan bringing the offer not arrested about the instead of then process begun buying and acquiesced alternative— liquidation, in an banks, notes, cancelling lending includ plan. plan involved no (a) If offer trustee, personal from potential ing or would have received actual substantial' $7,500,000 trustee, facts least of cash (b) Vaness at benefit to But that noteholders to Vaness would have withdrawn. disclosed to the fully made, argument cogency so that note- lacks defend the offer was whom fully lending accepting merely one of the banks. under ant was holder not which, such, trustee had the potential actual It was also a advantages stood such power, liquidation, by forcing the debtor’s consequences probable prevent receiving any banks those from offer, of not accepting the then the trustee to the detriment not liable for the loss those did who noteholders. acceрt. If, above,14b contrary to what we indicated facts us, On the now before we cannot $300,000 “assigned excess in the securi- say plan that the offer did not sub- involve ties” could have withdrawn Vaness anticipated potential stantial actual and sel- liquidation proceed- the institution of advantages trustee, fish and did not debtor, ings against then sum as, such an adverse interest absent create gone liquida- would have to the banks full disclosure of the facts to the note- holders, imposed assumption, liability on it for losses to tion. On the banks under saw, $300,000 non-acceptors. For, plan, plan gave up right as we the offer therefore, and, $106,000 upon, unlikely agreed when was not at all not bene- notes, preventing non-aecepting saw, fact, thus became procuring demand holders of about the outstand- 92% necessary compel ing action notes. the debtor of a kind would leave the the trustee 14a insolvency pro- voting precipitate debtor; hanks with which would control ceedings against 5a Vaness see footnotes would also and the subsid- give, iary. probably give, fact did gee outstanding 14b banks more footnote la.
profound loyalty, of it a un- ac- has back in the trustee all ture vests derstanding tion; provides human of its actions shall nature accomplishes actually brought frailties. It “in its name trustee” purpose. practical, It tends beneficent as trus- “in its name and the trustee conception prevent express of fidel- clouded trust” shall entitled of an tee preserves ity vision. It that blurs amounts due of all to sue collection judgment uncontam- free exercise the noteholders. allegiance 15a the dross of divided inated Justice Stone has said Chief prevents opera- precept principle or self-interest. “the embodies Holy Writ, influence that be indirect tion of an ‘a man cannot old as * (cid:127) * potent the more is all think- two masters’ No serve economy ing reason.” man can believe foundation a business can built
disclosed the cover both the of Van Sweringen thereon) the contingent brothers withdraw all interest lia- “assigned securities” after bility $4,000,000, of not to exceed or far 14bSubject qualifications nothing, ers the noteholders. noted There opinion. repeat, later in this record to show that offer, signed by gave debtor, 15c the trustee the noteholders data concerning debtor or sent investment bank- or advice the offer. assets, ag- enough figure, the this more than asset shown liabilities aside
Package Corp. Sealright bought 886; cancelled, Closure been the note Corp., Cir., $15,000,000 and, cf. F. issue was reduced to F.2d W. B., accordingly, Co. v. N. L. R. Vaness then withdrew Woolworth $7,500,000. F.2d also, See Great Southern & Oil Gas Mercury Indemnity Paul Red obliged Co. v. Cab we would 586, stand them 283, 288-290, when convinced of their error.20 cases there cited. suggested, It has how- “legal certainty” absence in of such a ever, plaintiff’s at- that our decision as to dicated the fact it filed its until tempted intervention in Hackner v. Guar- rehearing petition, defendant did not even' Co., Cir., anty is an Trust suggest that defense. adjudication in controver- amount It is true if defendant’s loss related sy $3,000 is not in and that there- excess of solely participation loss below, very fore the court court cash assets would have been avail- Guaranty Trust Com- which Hackner v. liquidation able for distribution had oc- pany brought, jurisdiction here. lacked probably curred in not her claim would Guaranty ac- In Hackner $3,000.19 But, excess as we begun by who had tion was said, she suffered an additional loss accepted sought recovery the offer and who participation have been what against Guaranty Trust in
such but is 268; Cir., ing Simecek v. United 10 F.2d loss which the trustee for a Cir., Omaha, plaintiff suffered, Bank National the amount States measured 214, 217, 218. which she could have recovered Messenger Anderson, wrong v. U.S. See debtor for defendant’s 1152; doing. 739, so, 436, 444, 56 L.Ed. 32 S.Ct. Even there could well 218, Margolies, v. et 279 U.S. v. Brown Riehle be considered doctrine of 669; 310, seq., John Webster, 73 L.Ed. 49 S.Ct. 15 S.Ct. Cir., e., Motor Car Cadillac son v. in L.Ed. i. an action 1023; Hammond- included, comput A.L.R. 261 F. is to be in tort States, 2 jurisdictional amount, United ing Knowlton interest damages F.2d forms respect in adjudi in thereof “assert in such an action ings noteholder,” and any on a manner as in a based different same other cation suit defendant’s with e., any transaction engage of its financial breaсh theory —i. corporation in which the obligations the for causing the debtor or fiduciary interested, may did here liquidation claim debtor no more was not —her a note- permit to become requisite amount.21 defendant debtor’s sub- holder and a creditor also relics on Defendant defendant, sidiary. did authorize exculpatory The clauses indenture.22 position, when in that subordinate with provision advise “trustee of the noteholders to interests * * * fully pro shall counsel own. respect tected in action taken or suf * * * provision that good faith accord Defendant stresses fered * * * counsel,” opinion shall be “answerable with the the trustee ance here, anything application are for connection no facts whatever has no except for its own wilful mis failing indicating shown to cause this trust conduct,” York New decisions liquidation in the offer cites participating and in noteholders, pertinent here. We cannot all without full notice said to which defendant chief agree. case on acted on advice of counsel. defendant ly National might pur is Hazzard Chase relies provisions that Bank, any of N.Y.S. chase own or the notes Misc. hold Kinney judicata Savings res Ed. v. Columbia discussion of Cf. Ass’n, Bogert, Loan 191 U.S. 24 S.Ct. Pacific Co. Southern v. Automat 103; Thompson
Civil terms on Rules tion following 723c; and of the section Smith the Trustee U.S.C.A. issued McCullough, U.S. S. and of holders notes under ” * * * 682; Realty Holding said Indenture. While Ct. average noteholder, know, Donaldson, we mat as a Co. knowledge, 1014; reads Norton ter of common never L.Ed. S.Ct. yet indenture, Larney, all notehold U.S. by its terms Mexican Cent. are bound so far as R. Co. v. ers they Duthie, 47 L. are valid. (affirmed App.Div. N.Y.S.2d allowing holders its sub action in n 147; Id., 801), stitution, N.E.2d N.Y. or that it was actuated in provided way pur where the trust indenture bad faith.” found pose “under withdrawal, answerable trustee should far as the so trus whatsoever, except concerned, circumstances tee was was the furtherance negligence expansion bad faith.” an gross own policy obligor and its large unsecured companies trustee had made affiliated “nothing The loans and that there was officers, af obligor, to show” “had. trustee per any companies. knowledge filiated indenture insincerity these ** alleged obligor policies.” facts, mitted the withdraw securities On the *. pledged with the and to substitute also found trustee that the Court trustee was applicable earnings, guilty to not provided gross negligence. others in case, pay stant indenture from interest under the issue of defend not that remaining deposit negligence all securities ant’s but whether defendant was substitution, guilty cer trustee after “wilful misconduct” which we period application equivalent tain take to preceding be the of “bad faith.” substitution, case, least interest The findings twice the Hazzard where requirements period year. fact one issue particular turned on the evidence, defendant precedential contended that record here.23 has force guilty permitting here, cer faith bad For on the facts now before substitutions; pur argued (which, repeat, tain us must canvassed pose permitting trial), appear them was after a the de obligor knowingly to' enable the to use the withdrawn fendant failed to action and take meeting purpose collateral for the injured plaintiff, although so de doing requirements such, interest se debentures knew that inaction probably operate fendant indenture, preventing cured thus concomitant payment otherwise inevitable default of to the defendant’s own substantial advan keep obligor interest in order tage. six, during alive for months viffiich time parties stipulated 10. The protect trustee would be able to collect or plaintiff’s originally acquired notes “were obligor its loans affiliated com
obtained conduct, plaintiff ignorance firm, was her assignment to her such an lapse of implied any rate, At until after ten fact. years; only provis >n of the New summary judgment, we cannot a motion York acquire which makes allowance that she did the notes statute hold ignorance express implied assignment, in such subdivision 5 of is an actual § remanded, “an solely which relates pro- When the action fact. case judgment ground fraud,” may amend set the actual cure forth facts and that assignment, and of New York сourts inter- concerning course preted liberty try apply exclusively defendant will section at show assignment actions for express short, there was deceit like. implied none defendant contends New fact.26 York law, federal therefore court sit- alleges 11. Plaintiff complaint in her ting York, beneficiary a suit New par- she did not learn of that ticipation tile trustee’s trust, against a trustee for breach of unless 1931 offer until “the equivalent deceit, is the of an action for sought middle 1940” when to inter- she ten years, barred least regard- Guaranty vene the Hackner v. less of the due to the in- fact trustee’s noted, Co. action. As previously an order conduct, equitable beneficiary ig- denying her intervention in that action was of action norant cause until after affirmed court. 95. That statutory fixed period. Assuming, ar- action April terminated as her on guendo, interpretation that defendant’s when certiorari denied in correct, New York decisions is we re- U. S. L.Ed. 1520. ject contention for defendant’s the follow- argues that, Defendant Erie ing reasons. Tompkins, R. Co. v.
L.Ed. 745. 58 S.Ct. accepting, remanded, de After suffered losses. As each case is may, fit, noteholder, recover, fendant, course, in order if it needed sees try he, individually, allegations show that these had acted in traverse adequately alleged plaintiff misrepresentations, does not reliance show purposes represent held noteholders. How establish- the absent purposes (and will, purposes therefore of limitations intervenes who holder (1), laches, laches), between class suits under the benefit the defense (3), no (2) (3).. in suits attempted to under As when the date (2), Rule (1) than those Guaranty less Hackner v. tervene ques persons having unequivocally Rules, all tells new Before the Co.54a type therein described claims of considered to have tion seems may begin such a in one them now described kind suits class “on when the an action behalf all” times several it was 23(a) (3), im “class” “so as make it class numerous intervenors favor of swered practicable bring them before the in 23 all described now character suits noteholders, Irons, Any non-accepting 121 court.” (2). Richmond v. (1) (a) assurance, relying justified in on that