Opinion
No. 5564.
September 23, 1936.
Appeal from the District Court of the United States for the District of New Jersey; Phillip Forman, Judge.
Action by Milton E. Mermelstein against the Thermoid Company, a Delaware corporation, to recover on matured bond containing provision: "This note is one of a duly authorized issue of notes of the Company known as its Five Year Six Per Cent Sinking Fund Gold Notes (herein called the notes), limited to an aggregate principal amount of Three Million Dollars ($3,000,000), issued or to be issued under an Indenture of Trust (hereinafter called the indenture), dated as of February 1, 1929, executed and delivered by Thermoid Company to National Bank of Commerce in New York as Trustee, to which indenture reference is hereby made for the terms and conditions on and under which the notes have been or are to be issued and the nature and extent of the rights of the holders of notes, of the Company and of the Trustee. * * *
"In case of an event of default as defined in the indenture shall occur, the principal of the notes may become or be declared due and payable in the manner and with the effect provided in the indenture."
The indenture of trust referred to contains the provision that: "In order to promote and protect the equal and ratable rights of every holder of the notes and to avoid multiplicity of suits, all the notes shall be subject to the condition that all rights of action thereon, or in respect thereof, or on or in respect of the coupons thereto appertaining, are vested exclusively in the Trustee, and that no holder of any of the notes or coupons appertaining thereto shall have any right to institute any action, at law or in equity, upon the notes or any of the appurtenant coupons, or growing out of any provision thereof, or of this indenture, or for the enforcement of this indenture, unless and until the Trustee shall refuse or neglect to institute proper proceedings by way of remedy within a reasonable time after request of the holders of twenty-five per cent. in principal amount of notes then outstanding, filed with the Trustee, with an offer of satisfactory indemnity; and any recovery in any action or proceeding instituted by the holder of any of the notes or appurtenant coupons shall be for the equal pro rata benefit of all outstanding notes similarly situated, and, for the protection and enforcement of this Section 8, each and every noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity; provided, however, that nothing herein or elsewhere in this indenture or in the notes or in the coupons shall affect or impair the obligation of the Company, which is unconditional and absolute, to pay at the date of maturity therein expressed the principal of the notes and the interest thereon to the respective holders of the notes and coupons at the time and place in the notes and coupons expressed, or affect or impair the right of action, which is also absolute and unconditional, of such holders to enforce such payment or shall affect or impair the right of the owner of any warrant to enforce the provisions thereof as provided by the terms of Section 10 of Article II hereof." From a judgment for defendant, plaintiff appeals.
Judgment reversed, and cause remanded, with directions.
Milton E. Mermelstein, of New York City (Eugene Untermyer and Harry Hoffman, both of New York City, of counsel), for appellant.
Katzenbach, Gildea Rudner, of Trenton, N.J. (Louis Rudner, of Trenton, N.J., of counsel), for appellee.
Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.
In the court below Milton E. Mermelstein, owner of twelve five-year 6 per cent. sinking fund gold notes issued by the Thermoid Company, brought suit against such company to recover such matured bonds. Thereupon the latter moved to dismiss on the ground that plaintiff had no individual cause of action, but was bound by the provision that the individual bondholders had no right of action until the trustee had neglected to institute proper proceedings by way of remedy at the request of 25 per cent. in principal amount of outstanding notes. On the other hand, the plaintiff contended that, by virtue of a particular maturity provision in the bond, he had an unrestricted cause of action on maturity default. After the case was decided, the same clause came in question in a suit in the Court of Errors and Appeals of New Jersey, and it was there held that the individual stockholders could maintain a suit.
After argument and serious consideration, we are constrained to agree with the conclusion reached by the Court of Errors and Appeals of New Jersey in the case of Bullowa v. Thermoid Company, reported in 114 N.J.Law, 205, 176 A. 596.
The bonds were issued by a New Jersey corporation, the highest court of that state has construed the contract in its able and exhaustive opinion, and, after protracted study and careful consideration, we are constrained to adopt its view. So regarding the judgment below is reversed and the cause remanded for procedure in due course in accord herewith.