The opinion of the court was delivered by: KALODNER
Plaintiffs, Jennie Guettel and J. C. Kreuger, each own a $ 250 debenture bond and six shares of stock of the Philadelphia Warwick Company, which owns and operates a hotel-apartment house in the City of Philadelphia. The intervening plaintiff, Philip K. Herr owns $ 4500 of the debentures of the Philadelphia Warwick Company and 108 shares of its stock. There is presently outstanding a total of $ 1,967,850 of the debentures and 47,691 shares of its stock. It may be stated parenthetically there were 24 shares of stock issued for each $ 1000 of debentures.
Plaintiffs, Guettel and Kreuger, filed a complaint on July 3, 1945 seeking a temporary injunction restraining the Corporation and Watkins and Wilson, two of its officers and principal security holders, as well as the Tradesmens National Bank and Trust Company, indenture trustee, from taking any steps to carry out a plan to modify the terms and conditions of the indenture and from consummating a proposed $ 1,400,000 mortgage on the hotel property. The complaint asked further equitable relief as will subsequently appear. At the hearing July 30, 1945, the plaintiffs withdrew their prayer for a temporary injunction, and it was agreed by the parties that the matter should be treated as upon final hearing. After the plaintiffs presented their testimony, the defendants moved to dismiss on the ground that a cause of action had not been established.
Upon consideration of the pleadings, testimony, and the arguments of counsel, I make the following findings of fact:
1. The plaintiffs, Jennie Guettel and J. C. Kreuger, are holders of debentures in the principal amount of $ 250 each and voting trust certificates for six shares of common stock each of the defendant, Philadelphia Warwick Company, hereinafter called the company.
2. The intervening plaintiff, Philip K. Herr, is a holder of debentures in the principal amount of $ 4500 and voting trust certificates for 108 shares of common stock of the company.
3. Plaintiffs, Guettel and Kreuger, are residents of Illinois. The intervening plaintiff, Herr, is a resident of Pittsburgh, Pennsylvania. Defendant, company, is a corporation of Pennsylvania. The individual defendants are residents of Philadelphia, and the defendant, Tradesmens National Bank & Trust Company, is a corporation of the United States having its principal office and place of business in Philadelphia, Pennsylvania.
4. The company was reorganized in 1936 or 1937 under Section 77B of the Federal Bankruptcy Act, 11 U.S.C.A. § 207, pursuant to an amended plan of reorganization dated January 20, 1936 amending the original plan of reorganization dated June 1, 1935, promulgated by the company which was accompanied by a letter of the company to the holders of the then securities secured upon the property of the company, said letter being dated June 8, 1935.
5. Said letter of June 8, 1935 purported to explain the proceedings, the history of the company and the proposed reorganization plan and had annexed thereto, a statement of Assets and of Liabilities and Capital of February 28, 1935 and a Pro Forma Balance Sheet as at March 1, 1935 after giving effect to the proposed reorganization plan.
6. The individual defendants, Herman M. Watkins and Gabriel Wilson, were not responsible for any of the statements made by the company or other persons in respect to the said original or the said amended reorganization plan of the company.
7. Said letter of June 8, 1935 did not purport to be a part of the original plan, nor did it purport to constitute or contain conditions which would be binding upon the company in respect of the plan that would finally be adopted by the company and approved by the required security holders and by the Court.
8. It was not the intention of the company or of any of the parties in interest, or of the Court, that the said letter of June 8, 1935 or anything other than the terms of the amended reorganization plan should be binding upon the company or any of the parties.
9. Said letter of June 8, 1935 stated, among other things, that the amended plan of reorganization provided for the issuance of unsecured debentures to the amount of two million dollars and Voting Trust Certificates for Common Stock, both of which were to be distributed in specified ratios in exchange for Class B and Class C bonds theretofore outstanding and secured upon the company's property.
10. Said letter of June 8, 1935 also stated that it was considered inadvisable to secure the debentures by a mortgage, not only because it would have a new loan which might be needed for refinancing, but also a new loan which might be needed 'otherwise.' It was, therefore, contemplated that a new mortgage might be needed for any purpose.
11. Said letter of June 8, 1935 also stated that a Voting Trust was provided in order to prevent practical control by speculators acquiring 'less than a majority of the stock'. The individual defendants acquired more than a majority of the debentures and stock, in fact, more than eighty percent.
13. The Voting Trust Agreement provided that it could be terminated at any time upon the agreement of the holders of Voting Trust Certificates representing more than fifty percent of the stock of the company held in the Voting Trust. After the individual defendants acquired their debentures and stock, the Voting Trust Agreement was so terminated.
14. There was no evidence that the company did not properly approve a proposed mortgage loan of $ 1,400,000 to be secured upon its property.
15. The purpose of the company to use the proceeds of the mortgage loan to make payment on account of the principal outstanding debentures or to purchase debentures was not improper or inadvisable.
16. There is no evidence that the proceedings of the company to increase its authorized indebtedness was improper or inadvisable.
17. The amended plan of reorganization provided that the indenture governing the debentures should contain, and it does contain, provisions, among others, for amendment of the terms and conditions of the debentures and indenture with the written consent of the holders of two-thirds of the principal amount of the debentures outstanding.
18. There is no evidence that the proposed amendment of the debentures and indenture of the company is in any way improper or inadvisable or not approved by the ...