The opinion of the court was delivered by: GORLEY
This matter comes before the Court on petition of the Universal Stockholders' Protective Committee for a rule to show cause why the Order of this court made on March 7, 1945, by the Honorable Judge Schoonmaker, now deceased, in the matter of the reorganization of Universal Lubricating Systems, Inc., should not be amended and a Master appointed for the purpose of determining the present value of the holdings of the preferred stockholders of Universal Lubricating Systems, Inc., as it is now constituted, who are the same persons in most instances as the former creditors of Universal Lubricating Systems, Inc., prior to bankruptcy and reorganization of said company. 59 F.Supp. 171.
The petition for rule to show cause was presented to the Court on March 4, 1947. The Court directed the same to be filed, and two members of the Court have heard the oral arguments and considered the briefs filed by counsel for the respective parties to this proceeding. This was done for the reason that Judge Gibson, after the death of Judge Schoonmaker, confirmed the final plan of reorganization of said company, and entered the Order for the consummation of the reorganized plan. Judge Gourley heard and was informed in detail as to all the facts and circumstances having to do with the proceeding in which Universal Lubricating Systems, Inc., was a counter-claimant in a proceeding against the Stewart-Warner Corporation, in which violations of the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1-7, 15 note, and unfair competition were claimed. After the Court was engaged in the trial of said proceeding for approximately five months, a settlement was effected in the amount of $ 225,000, which was approved by the trial judge.
To make possible this information and knowledge being merged and thoroughly considered in disposing of said petition, two members of this Court agreed to hear and decide the request for the equitable relief desired by the Protective Stockholders' Committee.
In order for the problem to be intelligently approached and thoroughly understood, it is necessary that brief comment be made as to the circumstances existing from the time of the filing of the bankruptcy proceedings to the present date. A summarization will, therefore, be briefly made.
On May 12, 1941, bankruptcy proceedings were instituted for the purpose of protecting creditors of the Universal Lubricating Systems, Inc., and on August 5, 1941, the proceedings were transferred to one of reorganization, in accordance with the provisions of Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. Austin L. Staley, petitioner therein, was Trustee in the bankruptcy proceedings and was substituted, therefore, as Trustee for the Debtor in the reorganization proceedings.
The case was referred to a Master, who, among other things, found that there was insolvency under the Bankruptcy Act and a reorganization plan was submitted to him. The first plan was rejected by the Master for the reason that it included the participation to some extent of the stockholders of the Debtor Company.
On September 18, 1944, the Trustee filed an amended plan, the main provisions of which were as follows:
'(1) That creditors of debtor shall be given one share of preferred stock, and one share of common stock in the reorganized corporation for each $ 100 of claims duly proven by them; (2) the present common stockholders shall be given one share of new common stock, upon paying $ 10 for each unit of ten shares of the old common stock; (3) the present preferred stockholders shall receive one share of common stock upon paying $ 10 for each share of old preferred stock; (4) that each share of preferred stock in the new corporation is to have ten votes, while each share of the new common stock shall have one vote; (5) that the Steward-Warner litigation shall not be passed to the reorganized corporation, but shall be retained and litigated by the Trustee, and that the net proceeds of the litigation shall be ear-marked for retirement of the new preferred stock.'
The Special Master held hearings on this plan. On October 13, 1944, he filed a supplemental report, holding that this amended plan complies with the Act; that it is fair, equitable and feasible.
This plan was approved by the Master and in turn approved by His Honor, the late Judge Schoonmaker. The Protective Stockholders' Committee, representing the stockholders of the Debtor Company, took exception to this plan, and contended first, that there was no need for the reorganization plan for the reason that the Debtor Company did not commit an act of bankruptcy, that the Debtor Company was solvent at the time that the bankruptcy proceedings were instituted, and they took particular exception to the Master's findings on the question of valuation of the assets and business. They contended that the Referee erred,
1. In establishing the proper value,
3. That one Brynoldt had made various remarks thereby committing slander of title, and this would be considered an asset, and
4. That the Trustee was operating and earning a substantial profit and that this should be ...