Appeal from the District Court of the United States for the Southern District of Indiana, Indianapolis Division; Robert C. Baltzell, Judge.
Before EVANS, MAJOR, and KERNER, Circuit Judges.
These suits were separately brought by bondholders of the Indianapolis Gas Company*fn1 to recover interest claimed to be due upon the Gas Company coupons from April 1, 1936, to April 1, 1942. The Gas Company served a third-party complaint upon the city as third-party defendant, alleging that the city was or would be liable for any judgment recovered by the plaintiffs. The case was tried without a jury. The court found for the defendant and thirdparty defendant, and rendered judgments for costs against the plaintiffs, from which the plaintiffs separately appealed. Here, the appeals were consolidated for hearing and disposition.
The facts are not in dispute. Gillmor, a resident and citizen of Washington, in the District of Columbia, Abrams, a resident and citizen of the City of New York, and Pyramid, a New York corporation, are the owners of $12,000, $30,000 and $21,000 respectively, of the Gas Company bonds. The Pyramid suit is brought by it on its own behalf and on begalf of all other Gas Company bondholders similarly situated.
The bonds are part of an issue of $6,881,000 of First Consolidated Mortgage 5% Bonds dated October 1, 1902. Each of these bonds is in the principal sum of $1,000 and provides for the payment to bearer of interest thereon at 5% per annum in semiannual installments on April 1 and October 1 of each year until October 1, 1952. The interest payments are evidenced by coupons attached to the bonds. The bonds are secured by a mortgage deed of trust, dated October 1, 1902, conveying all of the then owned or after-acquired property of the Gas Company to the Trust Company of America and Ferdinand Winter as trustees. The Chase is, and has been for more then five years, the successor and sole trustee under this deed of trust. October 1, 1936, the Gas Company defaulted in the payment of the semi-annual interest due on the bonds and thereafter up to and including April 1, 1942.
In 1913, the Gas Company leased all of its properties for a term of ninety-nine years to the Citizens Gas Company, a company organized as a charitable trust under the laws of Indiana. In 1935, the Citizens Gas Company conveyed all of its assets to the city, and the city operated the entire system embracing both plants. The city, however, refused to accept an assignment of the Gas Company lease and contended that it was not liable thereunder. In March, 1936, the Gas Company and the city entered into a so-called "stand-still" agreement, pending the adjustment or court determination of the question of the city's liability under the lease. The city was permitted to continue the operation of the Gas Company properties, upon its agreement that it would deposit in escrow a sum equal to the semi-annual installments of interest due on the Gas Company bonds and a further sum equal to the dividends on the Gas Company stock. Pursuant to this agreement, the city deposited in escrow, from June 29, 1936, up to and including March 27, 1942, the total sum of $2,778,900.
In 1936, the Chase instituted an action in the United States District Court against the Gas Company, the city, and the Citizens Gas Company. In this action, the Chase sought a declaratory judgment holding that the lease was binding upon the city, and a coercive judgment for the interest which accrued on the Gas Company bonds on October 1, 1936. The District Court directed judgment in favor of the Chase and against the Gas Company for the accrued interest on the bonds. The Court, however, held that the city was not liable on the lease. June 6, 1940, this court, holding that the lease was binding on the city, reversed the decree of the District Court, Chase Nat. Bank v. Citizens Gas Co., 113 F.2d 217, and on November 10, 1941, the Supreme Court reversed this court upon the ground that the District Court lacked jurisdiction, 314 U.S. 63, 62 S. Ct. 15, 86 L. Ed. 47.
The lease, if valid as against the city, would bind it to restore the Gas Company's plant and turn it back in shape for operation at the expiration of the lease. But if the lease was invalid as against the city, that would not be true. For a more complete factual detail of proceedings prior to 1942, we refer to Consumers' Gas Trust Co. v. Quinby, 7 Cir., 137 F. 882; Quinby v. Consumers' Gas Trust Co., C.C., 140 F. 362; City of Indianapolis v. Consumers' Gas Trust Co., 7 Cir., 144 F. 640; Todd v. Citizens' Gas Co., 7 Cir., 46 F.2d 855; Williams v. Citizens Gas Co., 206 Ind. 448, 188 N.E. 212; Chase National Bank v. Citizens Gas Co., 7 Cir., 96 F.2d 363; Id., 7 Cir., 113 F.2d 217, and 314 U.S. 63, 62 S. Ct. 15, 86 L. Ed. 47.
In December, 1937, while the aforesaid action by the Chase was pending, the city brought an action in an Indiana state court against the Gas Company for a declaratory judgment that the ninety-nine year lease was not binding upon the city. This action remained pending in the Boone County State Court until May, 1942, when it was dismissed.
The record discloses that the property of the Gas Company was entangled with the city's (competing) plant; that $1,000,000 would have to be expended and six months to one year of time would be required to separate the two plants for separate operation; and that it would cost approximately $3,800,000 to put the Gas Company plant in condition for operation as a separate unit. There was evidence that it was impossible for the Gas Company to borrow the money needed to operate it as a separate plant. It further appears that the city could have duplicated the Gas Company's lines so as to furnish gas to all the consumers in Indianapolis at an expense of $2,500,000 and that the city had other advantages in manufacturing gas and coke. It also appears that expenses exceeding $300,000 had been incurred by the years of litigation, and that from September 19, 1936, the bonds had been excluded from sale on the New York Curb Exchange, except as dealt in "Flat," with all thedefaulted interest coupons maturing October 1, 1936, and thereafter, attached.
Immediately after the decision of the Supreme Court, the Gas Company and the city entered into negotiations for the purpose of settling and compromising the controversies between them, and a conditional settlement was agreed upon, pursuant to which the Gas Company property would be sold to the city for $9,708,733.14, that being its value. At this time, the bonded debt was $6,881,000, on which there had accrued coupon interest for six years of $2,064,300, making a total incumbrance of $8,945,300.
On March 16, 1942, by its circular letter, the Gas Company notified its bondholders of these negotiations and the terms of the settlement. The plan provided in essence: (1) The city was to pay $9,694,575.20 as of April 1, 1942, with interest at 2% per annum on $8,481,000 for any delay. (2) The company would convey all its physical property to the city, but would not warrant title as against the mortgage and taxes. (3) Each should release the other from all claims and demands. (4) The escrow fund might be used in making settlement. (5) Litigation in the State Court should be dismissed. (6) Bondholders should receive $1,120 per $1,000 bond, with 2% per annum after April 1, 1942, until consummation. (7) The Gas Company should pay certain fees and expenses. (8) The money to pay for said bonds should be deposited under an escrow agreement. (9) Like sums should be deposited for bondholders not agreeing. (10) A sum would be distributed to stockholders, expected to be approximately $39 per share. In this letter the Gas Company advised the bondholders that no interest had been paid on their bonds since April 1, 1936, because the city claimed it was not bound by the ninety-nine year lease; that as the result of the decision of the United States Supreme Court, the "ultimate outcome of the litigation, if continued, cannot be said to be free from doubt"; and that the litigation then pending in the Indiana state court may, "if the offer and plan of settlement * * * is not consummated, continue for a long period of time during which the interest on the bonds will continue in default."
The plaintiffs did not accept the plan, but between April 23 and May 6, 1942, more than a majority of the owners of the bonds did accept and agree to the plan, and as of January 25, 1943, $5,792,000 par value of such bonds, being 84.10% of the entire issue, were surrendered, and necessary funds to pay and take up the remainder of the bonds and coupons were deposited with the Chase. After more than 80% of the capital stock of the Gas Company had been voted by ...