Appeal from the District Court of the United States for the Western District of Pennsylvania; Robert M. Gibson, Judge.
Before WOOLLEY, Circuit Judge, and DICKINSON and KIRKPATRICK, District Judges.
The National Radiator Corporation was engaged in the manufacture and sale of radiators, boilers and other instrumentalities of radiation. It was organized in 1927 by the consolidation or merger of six independent companies in the radiator industry. Preliminary to the consolidation an appraisal of their assets was made in the sum of $26,192,000 (speaking for convenience always in round numbers).
Upon the basis of this appraisal and a showing of earnings of the constituent companies for the previous four years in sums between $2,456,000 and $3,488,000 a year, the new corporation, with $2,972,000 in cash and curront liabilities of $1,478,000, issued $12,000,000 Gold Sinking Fund Debentures, bearing 6 1/2 per cent. interest, of which $10,705,000 became outstanding. It also issued 60,000 shares of $7.00 Cumulative Convertible Preferred Stock and 270,000 shares (no par value) of common stock at an estimated value of $11,500,000, making total liabilities to securityholders of all grades of about $23,000,000. Neither then nor later did it place mortgage liens upon its properties.
With this capital structure, completed in August, 1927, the new corporation embarked in business, and earned $993,000 in the last four months of that year. In 1928, however, the construction of residential, commercial and industrial buildings throughout the country, on which the business of the corporation was dependent, began to fall off. Immediately unfavorable competitive conditions developed. Construction work continued to decline, causing the corporation to suffer in each of the three years succeeding its organization an average deficit of $600,000 before interest on the debentures or a deficit of $1,310,000 after interest but before sinking fund charges. In this situation, which was becoming progressively worse, the corporation defaulted in interest on the debentures due February 1, 1931, though unquestionably having in hand more than enough money to pay it. A Reorganization Committee, being appointed, set to work and evolved a plan to which we shall advert presently. To this plan about 96 per cent. of the securityholders assented. About 3 per cent. stood silent and 1 per cent. objected. This took time. Another interest payment came due August 1, 1931, on which the corporation defaulted. It defaulted also on its sinking fund obligation, though having enough money in hand to pay the former and partially, if not wholly, to meet the latter. During these successive defaults the corporation was, naturally enough, harassed by suits and threats of suits. To prevent waste in the creditors' race of diligence and to protect securityholders, the members of the Reorganization Committee, on October 1, 1931, filed a bill in the District Court praying for the appointment of receivers. Their prayer was granted.
The receivers, nine or ten months after their appointment, asked the court for an order authorizing them to sell all the assets of the corporation at a judicial sale for an upset price to be named by the court and under terms of the Reorganization Plan. The plain purpose of the application was to dispose of the corporation's assets in a manner which would conserve and hold them as a going concern for the protection of the senior securityholders.
The court made such an order. In August, 1932, the receivers sold all the assets on the bid of the Reorganization Committee and the court confirmed the sale. The position of the objecting securityholders (now appellants) is that, assuming but never conceding its jurisdiction to order and confirm the sale, the court erred in fixing the upset price of $2,500,000 and in confirming the sale for $2,550,000.
On the motion for an order of sale the learned trial judge set about to fix an upset price by determining the fair market value of the assets, an almost insuperable task when considered with respect to their character, the feeble market for some of them and, in these extraordinary times, an entire absence of a market for others.He had before him book values of upwards of $18,000,000 which, manifestly, were values out of all relation to the actualities. He was dealing with a proposed sale in the midst of a great business depression and therefore was concerned with selling values; doubtless realizing that, ordinarily, a thing is worth only what it will fetch. He called upon all parties for evidence on the subject. The complainants, at a hearing lasting four days, produced a mass of facts, figures and opinions; the objecting securityholders produced nothing.On the uncontradicted evidence, which was all he had to go on, the learned judge set an upset price for all assets of the corporation at $2,500,000, or $200,000 more than the highest figure the witnesses had given of what might be expected in liquidation.
We have at much labor studied and absorbed this record. A recital of the mass of facts and figures would add nothing to the decision of the case. It will be sufficient to say that, notwithstanding what on first view is a startling disparity between book values and market values, we cannot find on the evidence that the learned judge erred in naming the price in the order of sale. If the upset price of $2,500,000 reflected the fair market value of the assets, we cannot find on the assignment charging error in confirming the sale that the purchase price of $2,550,000 was inadequate. At this figure, the purchase price was two per cent. above the upset price and ten per cent. above the highest price the evidence indicated as likely to be realized in liquidation.
The assignments charging error in the order of sale and the order of confirmation are dismissed.
The law of the case arises out of a demand by the appellant-securityholders that they be paid and, to that end, the corporation be put in liquidation, and out of their challenge of the jurisdiction of the court to appoint receivers and order a sale of assets under the proposed plan of reorganization which they say was devised by certain securityholders and officials of the corporation and the trustee for the debentures in fraud of other securityholders.
We shall briefly dispose of the last question -- collusion and fraud -- by giving our judgment, which is in complete accord with the finding of the learned trial judge, that while the evidence shows consultation and co-operation between these several parties in formulating the plan it does not disclose collusion or fraud.
We have now reached the central question in the case, that of jurisdiction of the court to entertain the bill for receivers.It is pertinent to note the bill did not say the corporation was insolvent. That, in effect, was a tacit admission or declaration of its solvency. The ...