Louisville & N. R. v. Robin

SIBLEY, Circuit Judge.

The Louisville and Nashville Railroad Company on November 28, 1938, filed a petition in the District Court for the appointment of a successor trustee to recover from the State of New York a fund of $10,890, which that State had taken over from a New York bank as an abandoned account. The fund was alleged to be the balance of a fund put into the hands of trustees by the Circuit Court in 1880 to be disbursed under a decree of the court, which balance was alleged now to belong to the petitioner. The Court appointed James A. Robin as successor trustee, he recovered the fund, and reported to the Court its history, and recommended that it be paid into the registry of the Court to be after five years, if unclaimed, covered into the Treasury of the United States pursuant to 28 U.S.C.A. § 852. The recommendation was pursuant to the prayer of an intervention filed by the District Attorney in behalf of the United States. The Railroad Company excepted .to the report, reasserting its claim to the fund. The Court found the facts to be as stated in the report and ordered the fund paid into the registry of the Court. The Railroad Company appeals.

The important facts in the report, briefly stated, are these: The New Orleans, Mobile and Texas Railroad Company, incorporated by the State of Alabama in 1866 to construct a railroad from Mobile to New Orleans, issued $4,000,000 of first mortgage bonds secured by a deed of trust on all its property, owned and to be owned, Morgan and Raynor being trustees in the deed of trust.. There was also a second mortgage, in which Ames and Williams were trustees. Defaults occurred July 1, 1874, and in 1879 Morgan and Raynor, under court order, took possession of and operated the railroad as trustees and receivers. A sale of the railroad and all the mortgaged assets was made under decree of foreclosure of both mortgages on April 24, 1880, at which sale the properties were bought in on a bid of $4,000,000 by representatives of a bondholders’ committee holding $3,858,000 of the first mortgage bonds. The decree of sale provided that this committee might bid, and use the dividends payable on their bonds in part payment, with such additional sums of cash as might be required for the payment of expenses of the receivership and sale, and dividends due to others; and that any surplus from the sale should be paid to the trustees of the second mortgage. The bondholders’ committee had an agreement with the Louisville and Nashville Railroad Company to issue $5,000,000 of its bonds, to be used in part to raise the necessary cash to finance the sale, and in part to be exchanged bond for bond, for the foreclosed first mortgage bonds, after which exchange “all the right, title and interest of said bondholders in the said railroad, franchises, equipment and property * * * shall become the absolute property of the purchasers or their assigns * * * and thereafter the new bonds shall be the complete and full measure of the interest of the bondholders.” The Louisville and Nashville Railroad Company was by this agreement also to take a fifty year lease of the railroad. Immediately after the sale the purchasers, representing the bondholders’ committee, obtained a new corporate charter under a statute of Alabama authorizing purchasers of a railroad so to do, with $4,000,000 capital stock to be fully paid by a transfer of the railroad properties of all sorts. Thereafter the sale of the railroad was confirmed by the Court, and at the direction of the bondholders’ committee, who had assigned their bid, the property was conveyed to the new corporation. The fifty year lease was then made to the Louisville and Nashville Railroad Company; and the report states that all the assets of the new corporation, both real and personal, were later acquired by the Louisville and Nashville Railroad Company so that it is the successor of the new company. We are not told how this was accomplished, nor whether the old first mortgage bonds deposited with the bondholders’ committee were ever acquired by the Louisville and Nashville Railroad Company by exchange for new bonds of the latter company, as agreed.

On May 24, 1880, Morgan and Raynor, as receivers and trustees, made their report to the court, showing a full disposition of the proceeds of the sale, except that 132 of the first mortgage bonds had not been presented, nor had certain coupons maturing prior and subsequent to July 1, 1874, been presented, for all of which they were holding $109,882. It does not appear what the face of the coupons amounted to, for which $83,253 was retained, but the $26,629 held for the 132 bonds is stated to be “at the rate of $201.72 per bond to be paid and indorsed on each bond when presented.” From this it is evident that a dividend of only $201.72 on each bond of $1,000 was declared from the net proceeds of the sale. In December, 1887, the executors of Morgan and Raynor reported to the court that of the fund of $109,882, $73,-594 had been paid out to coupons, and $24,-612 had been paid on 122 bonds, leaving 10 bonds unpresented, for which $2,017 remained on hand. This, with the balance for coupons, made a fund of $11,675. Another trustee was appointed, who deposited this fund in the New York bank, paid it down to $10,887, and after living to the age of 104 years, died. Twelve years after his death the Bank, no one claiming the fund, turned it over to the State of New York as an abandoned account.

The appellant claims here that the part of the fund which is held to pay coupons maturing prior to July 1, 1874, was free money of the original debtor deposited by it to pay said coupons, which money now passes to appellant as the successor of the original railroad corporation, the coupon holders having lost their right to it by abandonment, limitation, or payment presumed after twenty years. The claim cannot be sustained. The order of June 1, 1880, establishing the fund of $109,882, expressly states that it is the remainder of the proceeds of sale, held for bondholders who did not join in the purchasing agreement, and was their “ratable share.” The trustees’ executors in their petition to the court refer to the balance then on hand as “the proportionate amount allowed and payable on each coupon or bond as fixed by said order and report.” There is nothing to show that any part of the fund was not the proceeds of the sale of the mortgaged property, standing in the place of the property as security for the bonds and coupons. Moreover, if any of it were free funds of the debtor corporation, they belong to its creditors rather than to a successor. Under the Alabama statute providing for reincorporation of a purchased railroad the new corporation succeeds to the franchises and faculties of the old corporation but not to its property or liabilities. Mobile & Montgomery Ry. Co. v. Steiner, McGehee & Co., 61 Ala. 559. Free funds would remain assets of the original corporation.

The entire proceeds of the sale of the mortgaged property, to which the lien of the mortgages is by a familiar principle transferred, belong to the first mortgage bond and coupon holders until they are paid in full, and then to the second mortgage bondholders. The net proceeds appear to have sufficed only for a dividend of .2017 per cent to the first mortgage creditors. If there are not so many bonds and coupons to be paid as were figured on, the balance on hand ought to be distributed as a second dividend. It does not revert to the mortgagor or its successor. The Court, having the funds in its hands as a res for distribution, has full jurisdiction to determine the distributees. In cases of receivership, or foreclosure where the distributees are many and unknown, it is usual to fix a date by which claims against the fund must be filed in order to participate, and to serve the order by publication. See 53 C.J., Receivers, §§ 393, 394; St. Louis & S. F. R. Co. v. Spiller, 274 U.S. 304, 305, 47 S.Ct. 635, 71 L.Ed. 1060; United States Trust Co. v. New Mexico, 183 U.S. 535, 22 S.Ct. 172, 46 L.Ed. 315; Western New York & P. R. Co. v. Penn Refining Co., 3 Cir., 137 F. 343; North American Co. v. St. Louis & S. F. R. Co., D.C., 288 F. 612; Dickinson v. Universal Service Stations, 9 Cir., 100 F.2d 753, 754. Section 57 of the Judicial Code, 28 U.S.C.A. § 118, appears to afford a statutory basis for the service by publication of persons having a lien on the fund. Such an ascertainment of distributees ought to have been made in this matter long ago, but it is not too late. If after due fixing of a reasonable date, and publication addressed to all holders of the bonds and coupons of the original railroad company, no other claimants appear, the fund should be applied to the claims under the first mortgage that have been filed. If the Louisville and Nashville Railroad Company did acquire first mortgage bonds in exchange for its own bonds as was agreed, it of course is entitled to the second dividend on the bonds it acquired. If no other claimants can now be found, it may thus get the whole fund. We perceive no other right or title it has to it.

We have no hesitation in concluding that it would not yet be proper to pay the fund into the registry of the court. It is the duty of the present trustee and the court to take the steps pointed out for finally distributing it. This money does not appear to have been adjudicated to belong to any particular person who has failed to claim it, as is contemplated in 28 U.S.C. A. § 852. It is a fund set apart for distribution to a class or classes, to-wit, the first mortgage bondholders and coupon holders. If some of the class do not appear to claim their share, it goes to the other members of the class. If no claimant secured by the mortgage can after due proceedings be found, then and only then would it properly be treated as unclaimed money. It was so held in American Loan & Trust Co. v. Grand Rivers Co., C.C., 159 F. 775. Brown v. Pennsylvania Canal Co., 3 Cir., 279 F. 417, did not involve a fund arising from a mortgage sale, but money paid into court by Pennsylvania Railroad Company to satisfy claims against it for diversion of funds made by bondholders of Pennsylvania Canal Company. The nature of the case and grounds of decision can best be understood from the opinion in the District Court, 274 F. 467. Redistribution to members of a class when some of the class could not be found was recognized as the general rule, but was thought inapplicable because the judgments of the bondholders against the railroad company were held to be several, so that what the railroad company paid in was the several property of each bondholder rather than a common fund to be distributed among them as a class.

The judgment is reversed for further consistent proceedings.