Opinion
No. 349.
June 4, 1945. Writ of Certiorari Denied October 8, 1945. See 66 S.Ct. 43.
Appeals from the District Court of the United States for the Southern District of New York.
Proceedings in the matter of the corporate reorganization of 1934 Realty Corporation. From the order of confirmation, the order denying motion to amend plan of reorganization, order directing confirmation of plan, and order denying motion to reconsider claim, the Hurd Committee, the petitioning creditors, and Carroll Dunham 3rd and Edward K. Dunham, as trustees of the estate of David Dows, appeal, opposed by Prudence Realization Corporation which moved to dismiss the appeal from the order of confirmation.
Order denying motion to amend reorganization plan reversed, and appeal from order confirming the plan dismissed.
The facts here, for all practical purposes, are the same as those in Prudence Realization Corporation v. Ferris, 323 U.S. 650, 65 S.Ct. 539, except as follows: The debtor here, with respect to which the Chapter X, Bankr.Act, 11 U.S.C.A. § 501 et seq., proceedings are pending, is 1934 Realty Corp.; the bankruptcy court here did not, as in the Ferris case, leave to any other court the determination of the issue of subordination but itself decided that issue. Further record facts are as follows:
By stipulation, a substantial part of the record in the Ferris case was made a part of the record here.
The corporate trustee for the holders of guaranteed certificates filed a claim in the Chapter X proceedings which did not differentiate between guaranteed certificates acquired by the guarantor and those held by public holders. The court below overruled an objection to this claim filed by appellees. Subsequently the court, on April 7, 1943, approved a plan of reorganization, presented by the debtor's trustee in bankruptcy, which made no differentiation in treatment between such certificates. Consents, including those of appellants and appellees, were subsequently filed, and on January 4, 1944, the court confirmed the plan. Thereafter, the New York Court of Appeals, on March 10, 1944, decided the case of Ferris v. Prudence Realization Corporation, 292 N.Y. 210, 54 N.E.2d 367. On April 17, 1944, appellants filed a motion, calling attention to that decision, and asking for an order approving amendments to the plan; the proposed amendments would have reserved decision of the question of subordination of the certificates held by the guarantor (i.e., priority of the other certificates) to a court of competent jurisdiction; the motion asked for "such other and different relief as to the Court may seem just in the premises." On May 31, 1944, the Court entered an order directing consummation of the plan and on June 27, 1944 entered an order denying the April 17, 1944 motion. On February 13, 1945, appellants made a motion for reconsideration of the claim filed on behalf of certificate-holders so as to subordinate the certificates acquired by the guarantor, because of the opinion of the United States Supreme Court in the Ferris case. On March 6, 1945, the Court denied this motion.
Appellants appeal from (1) the order of confirmation, (2) the order denying the motion to amend the plan, (3) the order directing consummation of the plan, and (4) the order denying the motion to reconsider the claim. Appellee moves to dismiss the appeal from the order of confirmation, dated January 19, 1944, on the ground that notice of appeal was too late, under the Bankruptcy Act, § 25, sub. a, 11 U.S.C.A. § 48, sub. a, as the notice of appeal was not given until July 14, 1944.
Delafield, Marsh, Porter Hope, of New York City (Eugene Blanc, Jr., of New York City, of counsel), for appellants.
Irving L. Schanzer, of New York City, for appellee.
Roger S. Foster, Milton V. Freeman, and George Zolotar, all of Philadelphia, Pa. (Kiva Berke, of New York City, of of counsel), for Securities and Exchange Commission.
Before SWAN, CHASE, and FRANK, Circuit Judges.
1. Appellee urges that the motion of April 17, 1944, proposed specific changes and modifications in the plan, and that we cannot say, on appeal from the order of June 27, 1944, denying that motion, that the court below abused its discretion in refusing to adopt those specific changes. However, as that motion contained a prayer for general relief, we think the question of the subordination of the certificates held by the guarantor is properly before us on the appeal from the order denying that motion.
2. The Hurd Committee argues that the doctrine of Prudence Realization Corporation v. Geist, 316 U.S. 89, 62 S.Ct. 978, 86 L.Ed. 1293 (which over-ruled our decision reported in 2 Cir., 122 F.2d 503) is no longer applicable to the question of subordination of guaranteed certificates held by the guarantor where the guaranty contract was made in New York. The argument runs as follows: In the Geist case, the Supreme Court treated the previous New York decisions as laying down a state rule of insolvency distribution and, solely on that ground, refused to apply those decisions in bankruptcy; since the Geist decision, the New York Court of Appeals, in its opinion in Ferris v. Prudence Realization Corporation, 292 N.Y. 210, 54 N.E.2d 367, has stated that its subordination doctrine is not one dealing with distribution in insolvency but is founded on the interpretation of guaranty contracts of this character; consequently, the rationale of the Geist case has vanished and the New York doctrine must be applied in bankruptcy to a New York contract. That contention we shall not consider for the following reasons: In Prudence Realization Corporation v. Ferris, 323 U.S. 650, 65 S.Ct. 539, 541, the majority of the Court, in affirming the decision of the New York Court of Appeals in the Ferris case, did not rest its decision on the suggested ground, but solely on this ground: There the bankruptcy court "neither considered the question of parity nor retained jurisdiction to consider it," but left it to be determined by any "court of competent jurisdiction," including the New York courts "without restriction by the federal adjudication"; and, accordingly, "it was for the New York Court of Appeals to define the governing New York law." There is thus some reason to believe that, had the very question which arose in the Geist case been again presented to the Supreme Court after the New York Ferris decision, in a case coming up from the bankruptcy court, the Supreme Court would have adhered to the Geist doctrine notwithstanding the intervening New York Ferris decision.
Cf. Geist v. Prudence Realization Corporation, 2 Cir., 122 F.2d 503, 507, 509, 510.
However, assuming that the Geist doctrine is unimpaired nevertheless we think appellee must lose. For, making that assumption, we take as our guide the concurring opinion of Chief Justice Stone in the Ferris case. Regarding the Geist doctrine as still possessed of full vitality, he held it inapplicable to the facts of the Ferris case because, on those facts, unlike those in the Geist case, parity treatment of the certificates held by the guarantor was inequitable, and subordination equitable. The facts here, for all practical purposes, are the same as those in the Ferris case. Following Chief Justice Stone's opinion, we therefore hold that subordination here was required.
As the consents necessary for the adoption of the plan were apparently sufficient without including those of appellee, we do not have before us the question whether, had those consents been necessary, the plan would again have to be submitted.
3. The appeal from the order of January 19, 1944, was not timely and must be dismissed. We need not consider the questions raised by appellee with respect to the other two appeals as those appeals seek the relief which we grant on the appeal from the order of June 27, 1944.
Order of June 27, 1944 reversed. Appeal from order of January 19, 1944, dismissed.