Appeal from the District Court of the United States for the Middle District of Pennsylvania; Albert L. Watson, Judge.
Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.
These are appeals from an order of the District Court affirming in part and overruling in part the recommendations of the special master.
This case arose out of the receivership of the Scranton, Montrose & Binghamton Railroad Company, hereinafter called the Montrose Company. Its line of railway ran from Factoryville, in Wyoming county, to Montrose, in Susquehanna county, Pa. The Montrose Company also operated, under lease made in 1910 to its subsidiary, the Scranton & Binghamton Traction Company, hereinafter called the traction company, the Northern Electric Street Railway Company, hereinafter called the Northern Company. It also operated the Dalton Street Railway Company, hereinafter called the Dalton Company, whose lines ran from Scranton to Factoryville, with a branch line to Lake Winola. This company was a subsidiary of the Northern Company.
The appellant is trustee under the first and prior lien mortgage made by the Montrose Company in 1919 to secure outstanding bonds to the amount of $1,800,000. The mortgage covered the company's line of railway in the counties of Wyoming and Susquetures, rolling stock, etc. The appellant is also successor trustee under the first and prior lien mortgage of the Northern Company which covered its line of railway and the leasehold of the Dalton Company, with its rolling stock, tools, and equipment.
E. C. Randolph filed a bill in equity against the Montrose Company on behalf of himself and all other creditors who might join in the suit, and prayed for the appointment of a receiver with authority to operate and manage the railroad and conduct its business. The appellees were appointed receivers and operated the Montrose Company and the subsidiaries as above stated.
The operation of the Montrose Company resulted in a loss, and so, on a petition filed by the receivers on August 31, 1931, the court granted a rule to show cause why the personal property and choses in action should not be sold free and clear of all liens and incumbrances. On the return day, the appellant filed objection to the sale on the ground that much of the property proposed to be sold belonged, not to the Montrose Company, but to the Northern Company and the Dalton Company. A rule to show cause was granted on this objection returnable October 23, 1931.
On October 20, 1931, the court ordered the receivers to return to the Northern Company, the railway, equipment and fixtures which had been leased to the traction company.
On the same day the appellant filed a petition for leave to foreclose the mortgage of the Northern Company, in which petition was set out specifically the property which the mortgage covered. The court allowed the petition and ordered the foreclosure, but on October 24, 1931, on further consideration, it filed an opinion ( -- F. Supp. -- ) dismissing the petition to foreclose and made absolute the petition of the receivers filed August 31, 1931, for the sale of its personal property and choses in action free and clear of all incumbrances as of October 20, 1931.
On October 26, 1931, appellant filed a petition to foreclose the mortgage of the Montrose Company, but this petition was dismissed November 3, 1931.
On October 27, 1931, the return of the sale of the property of the Montrose Company was filed setting forth that Ira C. Fine, one of the receivers, was the highest bidder for the property, with two parcels excepted, in the sum of $25,000. On the same day the sale was confirmed to Abram Salsburg on Fine's designation.
On November 3, 1931, on petition of the appellant, the court granted a rule to show cause why the sale should not be set aside. Answer was filed the following day. The matter was referred to a special master who heard the evidence and reported to the court on January 18, 1932, that all the property was subject to the mortgage of the Montrose Company, except that embraced in schedule "I," which belonged to the Dalton Company or to the Northern Company under and in accordance with the terms of the lease of the Northern Company to the traction company, which lease was assumed by the Montrose Company when it reorganized and took over the traction company, and with the exception also of the stock of the Lake Winola Park Company and the stock of the Lake Winola Association. The special master further reported that the property should be sold free and clear of the lien of the mortgage, and that the lien thereof should be transferred to the fund, and that in all other respects the sale should be approved.
Exceptions to this report were filed by Abram Salsburg, by the appellant, and by the receivers. On March 18, 1932 ( -- F. Supp. -- ), the court filed its opinion and orders sustaining the exceptions of Abram Salsburg, and of the receivers as to the stock of the Lake Winola Park Company, and Lake Winola Association, but disregarded the master's recommendation that the lien be transferred to the fund, discharged the several rules granted, except ...