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In re Randolph-Wells Building Corp.

May 15, 1964

IN THE MATTER OF RANDOLPH-WELLS BUILDING CORPORATION, DEBTOR. ETHEL M. BOESE ET AL., PETITIONERS-APPELLANTS,
v.
RANDOLPH-WELLS BUILDING CORPORATION AND LASALLE NATIONAL BANK, RESPONDENTS-APPELLEES.



Author: Major

Before DUFFY, SWYGERT and MAJOR, Circuit Judges.

MAJOR, Circuit Judge.

Appellants (petitioners), are twenty-four individuals who are the original owners, or own or have an ownership interest through inheritance or devise from original owners, of certificates of deposit representing first mortgage bonds issued in 1927, by City State Safe Deposit Company, an Illinois corporation (City State).

The present debtor, Randolph-Wells Building Corporation (Randolph-Wells) is the corporate successor to City State and came into being as the result of the latter's reorganization under Section 77B of the Bankruptcy Act in 1935-1936 (No. 7034). Randolph-Wells in turn was reorganized under Section 77B in proceedings commenced in 1937 and concluded in 1939 (No. 7464). The LaSalle National Bank (LaSalle) was the successor indenture trustee for the 1935 bonds of Randolph-Wells which, under both reorganization plans, were exchangeable, together with common stock of Randolph-Wells, for the old City State first mortgage securities, including those now claimed or owned by petitioners. The final decrees closing the estate in the two reorganization proceedings did not provide any time limit within which the old City State securities could be exchanged for the 1935 securities and common stock of Randolph-Wells.

In November 1960, Randolph-Wells effected a voluntary reorganization, as a part of which it at LaSalle's request deposited with it approximately $96,000, to pay principal and interest then owing and due on its 1935 bonds which petitioners and other holders of the old City State securities were entitled to receive, together with common stock then lodged with LaSalle, in exchange for their old securities under the reorganization plans.

In February 1961, Randolph-Wells petitioned the District Court to reopen its 1937-1939 reorganization for the purpose of having the Court fix a bar or cut-off date for the exchange of the old 1927 securities of City State for the 1935 securities and stock of Randolph-Wells. LaSalle was made a party to this proceeding, and in answer to the petition alleged that the proceeding in No. 7464 was terminated by a final decree in 1939, that the plan of reorganization had been completely effectuated and, therefore, the Court was without jurisdiction or authority to grant the relief sought by Randolph-Wells.

The District Court (Judge Juergens) in a written opinion decided this issue adversely to LaSalle and ordered a hearing on the petition of Randolph-Wells to have a bar or cut-off date filed. In Re Randolph-Wells Building Corporation, Debtor, D.C.Ill., 197 F.Supp. 327. In this opinion, the Court stated (197 F.Supp. page 332):

"It is eminently clear that La-Salle, as trustee, has the power to represent all of the bondholders. It is also clear that LaSalle, as trustee, has a duty to the bondholders so long as it remains trustee and should represent the unknown owners for so long as these unknown owners have a valid claim which may be asserted by the presentation of the 1927 bonds for exchange or until such time as these bonds may validly be presented for exchange."

After a rather extended hearing, the Court, on September 6, 1961, entered an order setting a bar or cut-off date of March 6, 1962. Notice of the pendency of this proceeding was given by publication and by sending a copy of the publication notice to the holders of the old City State securities by registered mail to their last known addresses. Upon the entry of the bar order, LaSalle also mailed out copies of this order to such holders at their last known addresses. Five holders surrendered their City State certificates prior to the bar date and received from LaSalle payments aggregating $14,998.71, as well as shares of Randolph-Wells. The remaining certificate holders, including petitioners and those whom they claim to represent, neither surrendered their securities nor took any steps to redeem them until after the expiration of the bar date.

Thereupon, petitioners, on April 25, 1962, initiated the current proceedings to vacate the Court order of September 6, 1961, fixing the bar or cut-off date of March 6, 1962. Petitioners prayed in the alternative that the Court extend the bar date to give City State security holders who had not done so an opportunity to realize on their securities. In this proceeding, Randolph-Wells and LaSalle were named respondents.

Petitioners sought to vacate the bar order on the grounds (1) that notice of the proceedings by publication and mailing failed to satisfy the requirements of due process; (2) that Randolph-Wells, aided by LaSalle, committed a fraud upon City State security holders, including petitioners, which vitiated the proceedings; (3) that substantial mistakes made in the bar proceeding required its reopening, and (4) that there was a lack of jurisdiction to reopen the proceedings because there had been a complete effectuation of the plan of reorganization (the Court, as heretofore noted, had decided this issue in favor of Randolph-Wells).

On April 9, 1963, the Court, after a hearing and consideration of much oral and documentary evidence, entered an order dismissing the petition to vacate its bar order of September 6, 1961, or, in the alternative, to extend the bar date established. It is from this order that the appeal comes to this Court.

In connection with its order of dismissal, the Court again filed an opinion in which is accurately detailed the evidentiary facts, its findings of fact and its reasoning, which culminated in the decision adverse to petitioners. In Re Randolph-Wells Building Corporation, D.C.Ill., 215 F.Supp. 849. We see no reason to burden this opinion by repeating the Court's statement of facts. Therefore, we adopt its opinion to and including the first two full paragraphs on page 854 of 215 F.Supp. as a part of this opinion.

In our judgment, the only serious question here is whether notice to petitioners of the pendency of the bar proceedings was sufficient to meet the standards of due process. As set forth in the statement of facts by the District Court (215 F.Supp. page 852), an order was entered by that Court July 17, 1961, setting forth in detail the manner and means to be employed by the parties in giving notice of the bar proceedings. This ...


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