In re Prudence Bonds Corp.

122 F.2d 258, 1941 U.S. App. LEXIS 2950
CourtCourt of Appeals for the Second Circuit
DecidedJuly 23, 1941
DocketNo. 265
StatusPublished
Cited by8 cases

This text of 122 F.2d 258 (In re Prudence Bonds Corp.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Prudence Bonds Corp., 122 F.2d 258, 1941 U.S. App. LEXIS 2950 (2d Cir. 1941).

Opinion

SWAN, Circuit Judge.

This case embraces a large number of consolidated appeals from orders granting or refusing allowances in a corporate reorganization initiated under section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, on June 29, 1934. In passing upon the applications for allowances the district judge ruled 'that the provisions of the Chandler Act 11 U.S.C.A. § 1 et seq., were applicable. The appeals came to this court in two groups. The first group, which included appeals from orders entered in February 1939, was argued in May of that year, but decision was held in abeyance until the district court should pass upon additional pending applications for compensation in order that we might know the aggregate of the administration costs. In re Prudence-Bonds Corporation, 2 Cir., 106 F.2d 44. By order entered November 6, 1939, the additional allowances were fixed. They were brought to this court by a supplemental record and constitute the second group of appeals. Argument as to this group was heard in February, 1940. Before decision was rendered motions to dismiss both groups of appeals for lack of jurisdiction were made and granted. In re Prudence-Bonds Corporation, 2 Cir., 111 F.2d 37. This order was reversed on January 6, 1941. Reconstruction Finance [261]*261Corp. et al. v. Prudence Securities Advisory-Group et al., 311 U.S. 579, 61 S.Ct. 33, 85 L.Ed. -. After the mandate of the Supreme Court came down, certain óf the appealed allowances were reduced by compromise or accepted as correct by the parties appellant; the appeals with respect to all such allowances have been severed and discontinued by orders of this court. The remaining appeals have been again argued and are now before us for decision on the merits.

When Prudence-Bonds Corporation, hereafter called the debtor, filed its petition for reorganization, there were outstanding eighteen issues or series of its bonds, of the aggregate principal amount of some $56,000,000. The bonds had been sold to the investing public and were held by some 30,000 different owners. Payment of the bonds and interest thereon was guaranteed by The Prudence Company, Inc., hereafter called the guarantor. Each series of bonds was secured by a pledge of collateral deposited with a corporate trustee under a trust agreement. The pledged collateral consisted mainly of real estate mortgages, which were being “serviced” by the guarantor, although it was in default under its guaranty. Much of the delay and much of the expense incident to the debtor’s reorganization was due’ to litigation caused by the guarantor’s unwillingness to give up such “servicing.” The debtor and the guarantor were affiliated corporations, the stock of each being owned by New York Investors, Inc., hereafter called the stockholder. The stockholder filed reorganization proceedings on January 7, 1935, and the guarantor did likewise on February 1, 1935. The same individuals who had been appointed reorganization trustees for the debtor, were also appointed trustees for the stockholder and the guarantor.

In addition to its eighteen series of bonds the debtor had also put out some $53,000,000 of mortgage participation certificates, but these certificates did not represent debts of the debtor and were not reorganized in this proceeding.1 In re Prudence-Bonds Corporation, 2 Cir., 79 F.2d 212. The purpose of seeking reorganization of the debtor’s eighteen series of bonds was to prevent forced liquidation and to effect a modification of the indebtedness by an extension of the maturity date and a reduction of the interest rate of each issue of bonds. After much litigation this purpose was accomplished. All that the debtor brought into the bankruptcy court for reorganization was about $11,000 in cash and its potential equity in the pledged collateral. It should have been obvious from the start that the debtor was insolvent and that no equity remained for its stockholder; but the plans proposed on behalf of the debtor did not recognize this and no finding bf insolvency was made until March, 1937. Although several bondholders’ committees were formed and intervened in the proceeding, the committees never enlisted enough proxies to speak with authority for the general body of bondholders. Not only these committees but also the reorganization trustees of the debtor’s stockholder and some of the corporate trustees circularized the bondholders regarding the proposed plans. The result was delay, duplication of effort and additional expense. Finally, after the finding of insolvency, the plans were amended to provide for a reorganization solely in the interest of the bondholders, and thereafter progress was more rapid. On January 18, 1938, the district court confirmed the composite plan of reorganization which consists of a “General Plan” and eighteen “Series Plans”, substantially uniform, one for each issue of bonds. A new corporation of the same name as the debtor, whose stock was issued to the bondholders of all series, was set up to manage, conserve and liquidate the pledged collateral. The same corporate trustee, City Bank Farmers Trust Company, was provided for all the series and this trustee is to handle distributions of principal and retirement of bonds. Should the collateral of any issue produce a surplus it will go pro rata to other issues. The effective date of the composite plan of reorganization was March 1, 1938.

Against the background of this brief outline we pass to a consideration of the present appeals. The allowances made by the orders of February, 1939, were nearly $480,000, those fixed by the order of November 6, 1939, come to about $626,000, and prior interim allowances add about $350,000 more, making a grand total of some $1,450,-000. The new corporation and Reconstruction Finance Corporation appealed on the ground that the total cost of the reorganization was excessive and allowances to specified claimants too high. Appeals were [262]*262also taken by numerous claimants who had received nothing or awards which they thought inadequate. In general we may say that we think the amounts awarded to attorneys for committees, to the debtor’s trustees and their attorneys, and to the debtor’s attorneys were much too high. Most of these allowances, however, are no longer before us, reductions having been arranged by settlement between the parties and the appeals involving them having been discontinued.2

Of the appeals which survive we will take up first those of the appellants who were refused any award whatever.

1. Claim of Harry H. Oshrin. He represented several bondholders on whose behalf he brought suits in the state courts to compel the corporate trustees of the issues involved to settle their accounts and distribute the income then in their possession. These suits were stayed by order of the bankruptcy court, one of the stay orders being affirmed by this court. In re Prudence-Bonds Corporation, 75 F.2d 262. The appellant asserts that his fees for services in the state court suits are secured by an attorney’s lien, but he does not say to what property the lien attaches. Certainly not to anything which the suits brought into the bankruptcy court, for they brought in nothing.

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Bluebook (online)
122 F.2d 258, 1941 U.S. App. LEXIS 2950, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-prudence-bonds-corp-ca2-1941.