The debtor had demanded $ 1,000,000 for the property, and it was assessed by the City of Pittsburgh at the sum of $ 553,400 and by Allegheny County at $ 362,430. Prior to 1938 the City of Pittsburgh had condemned a part of the lot. At the first trial the jury awarded $ 151,000 for the part taken, but on a second trial only $ 50,277 was allowed. The judgment became final in 1938, and ended the payment of interest by the debtor on the First Ward mortgage and in the ultimate reorganization proceeding. It meant that the debtor and the Bondholders Protective Committee, and the Peoples-Pittsburgh Trust Company as well, were woefully disappointed in the verdict and that their supposed equity was non-existent, but did not prove that the Peoples-Pittsburgh Trust Company, or its officers on the Bondholders Protective Committee, had been guilty of bad faith or willful negligence in failing to take action to stop the payment of interest on the First Ward mortgage after the death of Mr. James I. Buchanan in 1931. The exception incorporated,a finding that the Indenture Trustee was in full charge of the debtor during this interest-paying period, which is not in accordance with the fact.
The second exception asserts that the Indenture Trustee should be surcharged with $ 20.334 attorneys' fees and other litigation expenses connected with the condemnation of part of the First Ward lot which, it is alleged, it (Indenture Trustee) caused to be paid out of the general funds of the Terminal Warehouse. The amount of $ 12,807.78 for counsel fees and expenses was paid to attorneys who represented debtor in the condemnation action. Part of this sum was for services in the condemnation action and was paid prior to payment of the judgment by the City of Pittsburgh. The attorneys had claimed no lien upon the award. The payment was upon the theory that Terminal Warehouse, which received the proceeds of the First Ward mortgage, was equitably required to attempt to preserve its supposed equity in the property. It was not mentioned, however, in the second exception.
The City, in making payment of the award against it, deducted $ 29,431.71 for delinquent taxes on the property. The balance, $ 20,845.53, was assigned by the debtor to the Peoples-Pittsburgh Trust Company, mortgages of the $ 200,000 mortgage, pursuant to its lien rights. This was done after due notice to bondholders and with consent of the Bondholders Protective Committee.
The third exception asserts that the Indenture Trustee should be surcharged with the sum of $ 925,598.58, aggregate amount of annual dividends paid by debtor between 1911 and 1927 inclusive when the net earnings of the debtor were insufficient to justify such dividends. This exception claims that the dividends were paid with the knowledge, consent and approval of the Indenture Trustee.
This exception is lacking in proof. The knowledge and consent of the Trustee is based on the assumption that it had knowledge of the dividends by reason of the connection of Mr. James I. Buchanan with the Trustee as one of its directors. Other than the assumption there is no proof whatsoever of the knowledge of the Trustee. Mr. Buchanan's actions in this period were plainly against the interests of the Trustee, and concealed by improper accounting. No other officer of the Trustee was an officer of the Terminal Warehouse, and no complaint was made to the Trustee by any person having knowledge of the methods by which the dividends were declared. In view of the undoubted conflict between the interests of Mr. Buchanan and those of the Indenture Trustee, the assumption of knowledge without proof is unjustified.
No testimony in the record tends to establish insolvency, or threatened insolvency, by reason of the dividends, of the Terminal Warehouse when they were declared. Such proof is necessary to sustain the exception, even if knowledge were assumed of the improper accounting merely by reason of the office of Mr. Buchanan as a director of the Indenture Trustee.
The Fourth and Fifth exceptions are general and assert that the Indenture Trustee should be surcharged in an amount not named for failure to safeguard the interests of the bondholders of Terminal Warehouse.
The court recognizes the duty of an Indenture Trustee to perform its duties with undivided loyalty to the trust it has assumed. In the instant case it has reason to regret that because of the mortgage on the First Ward lot a situation was created which might have ended in conflicts between the trusts which would have made loyalty to each impossible, and which led to the exceptions filed. The court, after attempting to scrutinize the actions of the Indenture Trustee, and of the same Trust Company as trustee of the mortgage pool, feels that in each capacity the Trust Company performed its duty, giving to each trust just that to which it was legally entitled, and did not wilfully neglect the rights of the Terminal Warehouse trust to the benefit of the mortgage pool.
As stated supra, the remedy sought by the exceptions must be by plenary action, and the exceptions are subject to all pleas which can be urged in such actions. In the present matter the exceptions are based upon the Indenture Agreement.
The exceptions will be dismissed.
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