lessors into reorganization anyway, but it was apparently felt that no one would benefit by anticipating such a drastic outcome.
Accordingly, Order No. 170 was entered, largely by agreement. In that Order, this Court, without deciding the jurisdictional issues, restrained all creditors of lessor companies from taking any action to enforce their claims, except upon giving at least 14 days' notice to all parties in the reorganization proceeding, so that the parties would have an opportunity to be heard on the precise issue raised.
One Sylvia Friedman, a bondholder of one of the lessor companies, the New York Connecting Railroad, was apparently not satisfied with this arrangement. When the Trustees failed to pay rental under the New York Connecting lease, and New York Connecting was thereupon unable to pay interest on its bonds, which fell due on October 1, 1970, Mrs. Friedman requested the indenture trustee of the New York Connecting mortgage (Morgan Guaranty Trust Company) to bring suit against New York Connecting and obtain a judgment for the unpaid bond interest. The indenture trustee declined. Thereupon, Mrs. Friedman brought suit in the state court in New York, seeking to recover the unpaid bond interest from the New York Connecting. The Trustees of the Debtor then petitioned this Court for an order directing Mrs. Friedman to show cause why she should not be enjoined from prosecuting the New York action. A hearing on the Trustees' application was held on June 28, 1971. At the hearing, counsel for Mrs. Friedman (her husband) took the position that she should be allowed to proceed with her state suit. Although plaintiff's other counsel had filed an affidavit signifying that plaintiff had no intention of trying to enforce her judgment, if she should obtain one, the argument presented by her husband at the hearing seems to adopt a more sweeping view of Mrs. Friedman's rights.
Counsel for the indenture trustee took the position that this Court lacks jurisdiction to restrain Mrs. Friedman's suit, but that in any event, her suit would have no effect upon the reorganization, since, under the terms of the mortgage indenture, Mrs. Friedman would be precluded from attempting to enforce any judgment she might obtain (such action could be taken only by the indenture trustee on behalf of all bondholders, and the indenture trustee declined so to act). Counsel for the Trustees of the Debtor, invoking In re Pittsburgh Rys. Co., 155 F.2d 477 (3d Cir. 1946), cert. denied, Philadelphia Co. v. Guggenheim, 329 U.S. 731, 67 S. Ct. 89, 91 L. Ed. 632 (1946), contended that this Court has jurisdiction, and that Mrs. Friedman should be enjoined from proceeding in the state court in order to preclude a potential avalanche of similar litigation by individual bondholders, and because of the prospect that attempts would be made to enforce such judgments.
The matter has remained dormant and unresolved. Part of the delay is attributable to the hope that the Trustees might soon be in a position either to affirm or reject the New York Connecting lease; and part of the delay is attributable to inadvertence. Ultimately, by letter dated September 11, 1972, plaintiff's counsel brought the matter to my attention and requested disposition of the petition.
Although no injunctive order has been entered, and although plaintiff's counsel at the hearing insisted that Order No. 170 did not preclude his prosecution of the state action, and although plaintiff has never actually requested leave of this Court to proceed with the state action, it seems appropriate under the circumstances to adopt the suggestion of counsel for the Trustees, and to treat plaintiff's response to the Trustees' petition as if it were a request, pursuant to Order No. 170, for leave to proceed with the state suit.
I have concluded that the present petition and the record made thereon do not present a proper vehicle for resolution of the broad jurisdictional issues. I am persuaded that the indenture trustee is correct in its assertion that, under the terms of the mortgage indenture, any judgment which plaintiff might obtain in the New York litigation would not be enforceable by her, and that a bondholder who obtains such a judgment occupies no different position from any other bondholders. In short, it appears that suits such as that proposed by Mrs. Friedman, while perhaps constituting a minor annoyance to the lessor, are essentially pointless. Hence, it is not to be anticipated that any appreciable number of such suits would be brought. The present record discloses no justification for the Trustees' expressed fears in that regard. It will be time enough to resolve the troublesome jurisdictional issues when a genuine threat to the reorganization process is posed, or when more substantial claims are involved.
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