RACOMBE, Circuit Judge,
[1 ] The first question submitted to the special master was the apportionment of the lump sum paid by defendants in the two actions in compromise of the claims therein prosecuted. When negotiations for compromise were being discussed, the court instructed the receiver that no proposal would be accepted by which de-' fendants should designate the distribution of what they paid. When the proposed adjustment was set down for hearing, it was expected! that any party or person interested, who thought the proposal should he accepted only on the condition that the claim in which he was in[674]*674terested should be paid in full, would indicate his position. But that was probably not plainly indicated, and the exceptants to the special master’s report were quite correct in insisting that they were to be heard in this proceeding as to the basis of apportionment. Indeed, the order of approval expressly reserved that right. This contention was recognized, and all testimony which they offered has been taken and considered. In the absence of any persuasive proof to the contrary, a proportionate distribution is the correct rule — equality is equity. No evidence persuasive to a departure from this rule is found in the record. There is no force in the suggestion that the action at law had terminated in a judgment, made final by the adverse decision of all appeals from it, while the equity suit had only been submitted to the trial court on final hearing. All that could be obtained by execution under the judgment against the Metropolitan Securities Company had been collected. The judgment debtor had been squeezed dry, and the $1,000,000 which had been secured from it has been allotted by the special master in solido to the action at law, without any apportionment. No more was in sight, or in existence, except such as might be realized by ancillary proceedings instituted by the judgment creditor against stockholders of the judgment debtor. These had been initiated, but had not advanced as far as the equity suit had. In these proceedings as in the equity suit there were legal questions involved which made the result of both uncertain. As to the realization of the fruits of a profitable victory in the ancillary proceedings, there might also be some question. There was never any suggestion that a judgment in the equity action for the full amount claimed would not be paid in full. The last paragraph of the memorandum in 180 Fed. 514, indicates that a like assurance was not then felt as to the financial results of the other proceedings. We must go back and view the situation as it was at the time of the settlement, disregarding what improvement in financial conditions two years of good fortune may have brought about. Four millions of the money paid in compromise was, it is true, raised on notes of the principal stockholder of the defendant in the lawsuit, but the amount of those notes was advanced by defendants in the equity suit at par. Whether the same notes could have been sold at that price in the open market at that time is open to question. As to which proceeding-it was which brought about the payment of this large sum, $5,500,000, and should therefore be credited with the accomplishment of the pleasing result, is a question not susceptible of proof. The writer who was advised of the negotiations for.compromise, which went on for months, may have his individual opinion, but, if so, it is a mere guess, and nothing in this record affords more solid ground for a conclusion.
In the brief for the trustee under first mortgage, there is a suggestion of various things which might have happened had the trustee objected to the acceptance of the offer of compromise, unless the proceeds were so distributed that the interests represented in the action at law should be paid in full and the discount allowed on settlement should fall wholly upon the New York City Company. The suggestion omits the most probable result of such insistence at that time, [675]*675viz., a rejection of the proposal outright, leaving each interest to obtain what it could as a result of the prosecution to a finish of the independent litigations then pending. What would have happened had the pending proposal been rejected is entirely problematical, but it is a reasonable supposition that an offer would have been made to settle the equity suit for a sum in excess of $1,500,000, which defendants in that suit individually contributed to the payment actually made in settlement of both actions. Whether a sum large enough to induce a settlement of the equity suit would have been offered is mere guesswork. Whether upon rejection of the pending proposal any substantial offer would have been made by the Interborough-Metropolitan to settle the pending proceedings against stockholders of the Securities Company no one can now tell or could then foresee. Counsel who then represented that company as defendant in those proceedings certainly manifested confidence in their ability ultimately to defeat such proceedings. The whole situation as it existed at that time is so filled with unsolvable problems that the special master’s distribution of the fund is approved as the only equitable solution.
It should be noted that out of the proceeds realized on the settlement of the action at law and the suit in equity the expenses of such realization, fees of attorneys and counsel and disbursements, should be deducted before there is any apportionment or distribution. But that is a matter which is of no practical significance, since the interest which has accrued on the fund while it has remained in the receiver’s hands awaiting the termination of this proceeding to apportion will no doubt be sufficient to pay such expenses and leave, possibly, some balance of interest to be apportioned in the same ratio as the principal on which it has accrued.
[2] As to the second question: There is much force in the argument of counsel for the New York City Company receiver and for the complainant in the original creditor’s bill, but the decision which the special master has reached touching the disposition to be made of the Metropolitan’s distributive share of the proceeds of the compromise seems on the whole more equitable, and is approved. If in response to the demand of receivers made upon the Securities Company for the unpaid balance of the $8,000,000 that balance had been paid in cash, without litigation or delay, the court, irrespective of any finding that a technical “trust” had been created, would have instructed receivers to use none of it for operating expenses, but to expend every dollar in improvements of the sort contemplated when the $8,000,000 was provided for. There was delay, long delay, in payment of this balance, and during the interim receivers used money and property of the New York City Company in making these very improvements. What was thus expended should, as the special master finds, he returned to the New York City Company before its distributive share is turned over to the Metropolitan. This applies, not only to the expenditures on the First Avenue and on the Twenty-Eighth and Twenty-Ninth Street lines, but to all expenditures of like character made prior to receivership, as well as to those made subsequently by receiver.
[676]*676In this connection reference may be made to a matter not discussed in the opinion. The receivers being without sufficient funds to make the necessary capital expenditures required to put the property in condition to render proper and efficient public service, $3,-500,000 was borrowed on receivers’ certificates.
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RACOMBE, Circuit Judge,
[1 ] The first question submitted to the special master was the apportionment of the lump sum paid by defendants in the two actions in compromise of the claims therein prosecuted. When negotiations for compromise were being discussed, the court instructed the receiver that no proposal would be accepted by which de-' fendants should designate the distribution of what they paid. When the proposed adjustment was set down for hearing, it was expected! that any party or person interested, who thought the proposal should he accepted only on the condition that the claim in which he was in[674]*674terested should be paid in full, would indicate his position. But that was probably not plainly indicated, and the exceptants to the special master’s report were quite correct in insisting that they were to be heard in this proceeding as to the basis of apportionment. Indeed, the order of approval expressly reserved that right. This contention was recognized, and all testimony which they offered has been taken and considered. In the absence of any persuasive proof to the contrary, a proportionate distribution is the correct rule — equality is equity. No evidence persuasive to a departure from this rule is found in the record. There is no force in the suggestion that the action at law had terminated in a judgment, made final by the adverse decision of all appeals from it, while the equity suit had only been submitted to the trial court on final hearing. All that could be obtained by execution under the judgment against the Metropolitan Securities Company had been collected. The judgment debtor had been squeezed dry, and the $1,000,000 which had been secured from it has been allotted by the special master in solido to the action at law, without any apportionment. No more was in sight, or in existence, except such as might be realized by ancillary proceedings instituted by the judgment creditor against stockholders of the judgment debtor. These had been initiated, but had not advanced as far as the equity suit had. In these proceedings as in the equity suit there were legal questions involved which made the result of both uncertain. As to the realization of the fruits of a profitable victory in the ancillary proceedings, there might also be some question. There was never any suggestion that a judgment in the equity action for the full amount claimed would not be paid in full. The last paragraph of the memorandum in 180 Fed. 514, indicates that a like assurance was not then felt as to the financial results of the other proceedings. We must go back and view the situation as it was at the time of the settlement, disregarding what improvement in financial conditions two years of good fortune may have brought about. Four millions of the money paid in compromise was, it is true, raised on notes of the principal stockholder of the defendant in the lawsuit, but the amount of those notes was advanced by defendants in the equity suit at par. Whether the same notes could have been sold at that price in the open market at that time is open to question. As to which proceeding-it was which brought about the payment of this large sum, $5,500,000, and should therefore be credited with the accomplishment of the pleasing result, is a question not susceptible of proof. The writer who was advised of the negotiations for.compromise, which went on for months, may have his individual opinion, but, if so, it is a mere guess, and nothing in this record affords more solid ground for a conclusion.
In the brief for the trustee under first mortgage, there is a suggestion of various things which might have happened had the trustee objected to the acceptance of the offer of compromise, unless the proceeds were so distributed that the interests represented in the action at law should be paid in full and the discount allowed on settlement should fall wholly upon the New York City Company. The suggestion omits the most probable result of such insistence at that time, [675]*675viz., a rejection of the proposal outright, leaving each interest to obtain what it could as a result of the prosecution to a finish of the independent litigations then pending. What would have happened had the pending proposal been rejected is entirely problematical, but it is a reasonable supposition that an offer would have been made to settle the equity suit for a sum in excess of $1,500,000, which defendants in that suit individually contributed to the payment actually made in settlement of both actions. Whether a sum large enough to induce a settlement of the equity suit would have been offered is mere guesswork. Whether upon rejection of the pending proposal any substantial offer would have been made by the Interborough-Metropolitan to settle the pending proceedings against stockholders of the Securities Company no one can now tell or could then foresee. Counsel who then represented that company as defendant in those proceedings certainly manifested confidence in their ability ultimately to defeat such proceedings. The whole situation as it existed at that time is so filled with unsolvable problems that the special master’s distribution of the fund is approved as the only equitable solution.
It should be noted that out of the proceeds realized on the settlement of the action at law and the suit in equity the expenses of such realization, fees of attorneys and counsel and disbursements, should be deducted before there is any apportionment or distribution. But that is a matter which is of no practical significance, since the interest which has accrued on the fund while it has remained in the receiver’s hands awaiting the termination of this proceeding to apportion will no doubt be sufficient to pay such expenses and leave, possibly, some balance of interest to be apportioned in the same ratio as the principal on which it has accrued.
[2] As to the second question: There is much force in the argument of counsel for the New York City Company receiver and for the complainant in the original creditor’s bill, but the decision which the special master has reached touching the disposition to be made of the Metropolitan’s distributive share of the proceeds of the compromise seems on the whole more equitable, and is approved. If in response to the demand of receivers made upon the Securities Company for the unpaid balance of the $8,000,000 that balance had been paid in cash, without litigation or delay, the court, irrespective of any finding that a technical “trust” had been created, would have instructed receivers to use none of it for operating expenses, but to expend every dollar in improvements of the sort contemplated when the $8,000,000 was provided for. There was delay, long delay, in payment of this balance, and during the interim receivers used money and property of the New York City Company in making these very improvements. What was thus expended should, as the special master finds, he returned to the New York City Company before its distributive share is turned over to the Metropolitan. This applies, not only to the expenditures on the First Avenue and on the Twenty-Eighth and Twenty-Ninth Street lines, but to all expenditures of like character made prior to receivership, as well as to those made subsequently by receiver.
[676]*676In this connection reference may be made to a matter not discussed in the opinion. The receivers being without sufficient funds to make the necessary capital expenditures required to put the property in condition to render proper and efficient public service, $3,-500,000 was borrowed on receivers’ certificates. The money thus .raised was devoted exclusively to meeting expenditures of that character. So scrupulously were these instructions observed that there was an unexpended balance left at the close of receivership, which, of course, is properly applicable towards payment of the certificates. In view of the use to which the funds thus raised were to be put, this court thought the certificates should be made a lien on the property only of the Metropolitan. The Court of Appeals, however, held that the purchaser of the certificates should have a lien also on the property of the New York City’ Company. One of the items of its property was the cause of action to recover from the Securities Company the balance of money agreed to be paid by it, and which, had it been paid, would have made it unnecessary to borrow anything. It was logical and proper, therefore, to pledge this chose in action to secure the loanf But it seemed at the time to this court unnecessary and inequitable to pledge any other property of the City Company for that purpose. That opinion is still entertained, and it is understood that, by its decision, the Court of Appeals did not commit itself to the conclusion that, except to the extent of its realization on this chose in action, the City Company should be required ultimately to pay these, certificates out of its own property. If the Court of Appeals on final hearing should concur with this court in the conclusion above expressed, the balance of Metropolitan’s distributive share after repayment of the expenditures enumerated by the special master should be applied, so far as they go, to the payment of the first issue of receivers’ certificates.
If, however, it'should be finally held that property of the City Company, other than this particular chose in action, is to be applied to the payment of these certificates, then it will come to pass that the capital expenditures made from the proceeds of the certificates have really been made from the property of the City Company. Such expenditures will then come within the category of those already allowed by the special master (in the paragraph of opinion next preceding his discussion of the third question), and should be deducted from the distributive share of the Metropolitan.
The third and only remaining question is the disposition of the four $1,000,000 notes of the Metropolitan. Nothing is found in the record to sustain the proposition that they were turned over, properly indorsed to pass title, for the sole purpose of cancellation or destruction. The master’s finding to the same effect is approved. If the arguments of the counsel for New York receiver and for the plaintiff in the creditors’ bill convince the Court of Appeals, there will be no third question to answer. Taking the case as it now stands, as it is disposed of by what has been said supra in this opinion, the question as to their disposition is easily solved. Had the receiver offered them on the open market and had some one bought them, the cash [677]*677proceeds of that sale would be distributed in the same proportion as all other cash realized on the settlement. Not having been sold the notes should be distributed in the same ratio. This would.leave one note to be split up, which could be done by indorsing receipt for payment of the proper proportional part.
As to the note or notes or fractional note remaining after distribution in the hands of the New York receiver, what is the status? That will depend upon what is the decision of the court of last resort touching the second question. If the decision of this court be affirmed, and if there shall be deducted from Metropolitan’s distributive share all moneys paid by New York Company prior to receivership for capital expenditures (not already paid), and also all obligations incurred! by New York Company for the same purposes and paid out of its estate, and all similar disbursements by its receiver out of its estate, the notes and fractions thereof which he holds will be without consideration and valueless as an offset. If, however, these expenditures are held not to be deductible from Metropolitan’s share, and the burden of them falls entirely upon the estate of New York Company, then there will have moved to the Metropolitan a consideration sufficient to make the notes valid obligations. All Metropolitan interests were represented on the hearing upon the proposed compromise, and by not objecting practically consented to scaling down part of the stipulated consideration for present cash. Being valid obligations of the Metropolitan in New York City receivers’ hands, thev would then he available as an offset, to their face value, against the money, payable by him to Metropolitan as its distributive share of the proceeds of the compromise. .Except as above indicated, the exceptions to special master's report are overruled, and the report confirmed.
In view of some suggestions contained in the brief of the Farmers' Loan & Trust Company, it must be remembered that, by reason of the circumstance that the numerous questions arising under these receiverships come up for determination in separate proceedings, inconsistencies sometimes appear, not only in the arguments of counsel, but also in the deliverancies of the court. For example, in this proceeding no attention is paid! to the question wdien the lease terminated. The opinion proceeds on the assumption that capital disbursements made by receivers after October 1, 1907, were made by them as City Company receivers with City Company money. That assumption is apparently inconsistent with the opinion heretofore expressed that after that date the receivers were not operating the road under the lease. Until the Court of Appeals finally decides the one question, there can he no certain decision of the other. If this court’s opinion as to the lease be sustained, then there will be no disbursements by receivers subsequent to October 1st to be deducted from Metropolitan’s distributive share. In the place of such deduction, however, the New York City receiver would have a good claim against the Metropolitan’s distributive fund for any money or property of its own which was used by Metropolitan receivers subsequent to October 1st.
It is of the utmost importance that this entire group of proceedings [678]*678be kept together, and argued at the same time before the appellate court. In no other way can a comprehensive and harmonious solution of these intricate problems be worked out.