Home/S.D. California/In re Mercantile Arcade Realty Corp.

In re Mercantile Arcade Realty Corp.

20 F. Supp. 397, 1937 U.S. Dist. LEXIS 1631
CourtDistrict Court, S.D. California
DecidedAugust 11, 1937
DocketNo. 24249-C
StatusPublished
Cited by3 cases

This text of 20 F. Supp. 397 (In re Mercantile Arcade Realty Corp.) is published on Counsel Stack Legal Research, covering District Court, S.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Mercantile Arcade Realty Corp., 20 F. Supp. 397, 1937 U.S. Dist. LEXIS 1631 (S.D. Cal. 1937).

Opinion

COS GRAVE, District Judge.

The Mercantile Arcade Realty Corporation owns a piece of rental business property in the downtown district of Los Angeles, appraised at $2,650,000, with outstanding first mortgage bonds to the amount of $3,639,200, held principally in New York by some 3,300 individual owners. Second mortgage bonds on the property amount to $942,000 and are held largely by the Chartered Investment Company of Philadelphia. Interest became delinquent on the first mortgage bonds on June 1, 1933, the corporation having previously defaulted on its second mortgage bonds. The 'entire corporate stock of the Mercantile Arcade Realty Corporation was owned by one Blumenthal, residing in New York. The first mortgage bonds had been marketed by three brokerage firms: Halsey, Stuart & Co., Inc.; S. W. Straus & Co.; and Stroud & Co.

Prior to the delinquency of the interest, these companies, through solicitude for the interests of their customers, the first mortgage bondholders, distrusting the management of the debtor corporation, and fearing for its solvency, interested themselves in the affairs of the company to the extent of securing from Blumenthal what is referred to as a “stand still” agreement, effective January 12, 1933. By this agreement the assets of the company were conserved, although Blumenthal was continued in the management. The agreement worked satisfactorily up to October 29, 1934, at which time, in order to prevent certain threatened detrimental action on the part of Blumenthal, a petition under section 77-B of the Bankruptcy Act (11 U. S.C.A. § 207) was filed by three creditors, proposing that it effect a reorganization, and the affairs of the corporation were thereupon placed in the hands of a temporary trustee. This ended the effective control of the affairs of the corporation by Blumenthal.

The activity of the brokerage houses above named resulted in the formation of a bondholders’ committee in March of 1934, composed of four members, generally employees or officers of the brokerage houses mentioned. The activities of the committee were, such that on March 1, 1935, a bondholders’ protective agreement was formulated under which approximately one-half of the first mortgage bonds were deposited. Blumenthal consented to the filing of a petition for reorganization under section 77-B of the Bankruptcy Act on behalf of the debtor corporation itself, and later, as the result of certain litigation prosecuted against him in New York and for other considerations, surrendered all of the capital stock to the bondholders’ committee. This was done on May 21, 1935, and all subsequent proceedings have been had under this petition of the corporation itself.

The plan of reorganization, dated as of March 1, 1936, was filed by the Chartered Investment Company and another creditor on June 16, 1936, the first named being the owner of a great majority of the second mortgage bonds. The plan agreed to by all parties interested has been adopted in its material parts and its details are unimportant here. No contest except with respect to unimportant details developed. Its final adoption was preceded by numerous hearings, formal in their nature, but neces'sary in order to insure compliance with the provisions of the Bankruptcy Act. The present proceeding, is for the purpose of fixing fees for the various service rendered and reimbursement for the expenses incurred in the proceedings under division 9, subsection (c) of section 77-B (11 U.S.C. .A. § 207 (c) (9).

The total amount asked for by all claimants is $204,662.13. Since the net income from the real property, being the entire property of the reorganized corporation, is $80,000 annually, ' it will require two and one-half years of income to equal the total of the claims if they are allowed as presented.

The bondholders’ protective committee, consisting of four members, ask a total compenstion of $25,000. They set forth expenses paid, including an estimate of what will be required to wind up their affairs of $26,938.83 in addition. The committee received all told bonds totaling $1,-709,000, or something less than half of those outstanding. Included in the $26,-938.83 is one item allocated to administrative expenses amounting to $9,366.80, which might seem to be a fair estimate of the total cost of handling the details of the committee’s affairs. Numerous additional expenses are listed, however, but since the operations of the committee were carried [399]*399on in New York, the court will assume that, with the exception of certain items of expense which are rejected, and some the amount of which are excessive, the remaining items were properly incurred.

A single, item of $14.04 allocated to cable expense was questioned at the hearing. Upon inquiry it developed that the chairman of the bondholders’ protective committee had sought surcease from the vexations of his duties on a yacht in the quiet waters of the Bermudas. Here he was advised on April 5, 1935, by counsel, not by ordinary mail, not by night letter (25 words for $3), nor yet by deferred cable (18 cents per word), but by “straight” cable at 36 cents per word, that due to certain obstructive tactics the intended procedure of the bondholders’ committee had gone awry and that it would be necessary to take the chairman’s deposition on his return to New York six days thereafter. To what extent this relieved the anxiety of the chairman, or why such a totally unnecessary message should be sent at all, does not appear. Manifestly, such an item is trifling so far as the amount of expense involved is concerned; it is, however, highly significant as indicating the heedlessness of expense throughout the proceedings where the bondholders pav the bills.

Attorneys’ fees are sought for services rendered to the bondholders’ protective committee by four firms of attorneys, two in New York, one in Philadelphia, and one in Los Angeles. The total amount asked for as fees is $75,000. The necessity for such multiplicity of counsel as advisor to the bondholders’ protective committee is neither clear nor understandable. The corporation had only common stock, a first and second mortgage. The corporate stock was owned by one individual, the first mortgage bonds were widely held, but the second mortgage bonds were held by very few, not more than some half dozen. The financial- structure of the corporation, therefore, was extremely simple. Extensive reorganization work was necessary, but hardly anything was presented in the way of a difficult legal problem, and none such existed. The hearing on the proposed plan, which at no time involved any serious issue, for the plan was not materially changed from the form in which it was first presented, was handled by the firm of Gibson, Dunn & Crutcher of Los Angeles, a firm certainly competent to attend to such matters. The necessary time, care, and attention were given by that firm without stint; nevertheless, a representative of one of the New York firms attended the hearings, making at least two separate trips to Los Angeles for the purpose, during one of which he remained several weeks, all at an expense to the bondholders with respect to transportation of $1,963.86. In addition thereto, long distance telephone tolls between Los Angeles and New York run into hundreds of dollars. It is conceivable that in the stress and heat of a desperate court battle, or in important business matters where time is important, the long distance telephone is a necessity. Here, however, at no time, during the hearings did there exist anything in the nature of an exigency justifying extraordinary expense of instant communication between Los Angeles and New York.

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Bluebook (online)
20 F. Supp. 397, 1937 U.S. Dist. LEXIS 1631, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-mercantile-arcade-realty-corp-casd-1937.