# Petition for Writ of Certiorari — Gregory v. Columbia Gas System, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA04386419_0799%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1959 - **Citation:** 359 U.S. 979 ## Text . . . a5 pa Pict AEE se. oo we ~ nt JIN in Na i ; ; : Supreme Court of the United States © Cieroner Deru. 1058 > , ‘ Cauaniis |. Grroory 4x00 Crypr boodaui. vs A Conparet ers rok Hombre RS or REN TOORY, FOr Grvs CORPORATION. 6! DrneNiURes WNpotirp VANS iON DoNbitotpeas Perrone Gosrvriiite POR PHlorters of okigsd Mokreaagr Poxps ob ° KiniteokKY Punt. Gas CORPORATION, polioners. me . ), ‘ . ad > The, Cone wppa Gas: Syste, Exe. Dex Wartiassox. TR, is PrRUsiir or TNtAND GaAs GorRPORATION AND OF KEA- Abeksy. beri Giaas CORPORATION, ET AL, f ¢ “’ A : i : } ; ' A - + 2 z . AAR ‘ >. PETITION FOR WRIT OF CERTIORARI TO UNITED STATES COURT OF APPEALS FOR THE SIXTH.CIRCUIT 6 2 x— ® ri z Witekin FARR GALLAGHER »¥Warrer TI Brows, Ir _ Warton &. FirgzGinnon, aN NNT |. BIAtRIN ae " Cs 15) Broad Sereed B New York 5, No Y.e, Martin & Satie, — : J Vous I. Swen Of Counsel, : Catlettsburg, Ky . ‘ ~ , Comnsel gar Petitroning ’ Sohn: , Comaittve for Holders of . Acntucky "Euel (gas Cu jess ; ae oy , poration Debemtures Mirnank, Tweepetlore & Hapiry, Ave kot Wo PAgtEs ae ‘ OF Counsel’ “TSR Broad Street : 3 New York 3, N Ny a Counsel for Petitronmea Date! | Marelt 11-1939 ee a — —- —— os » ra ‘. s . Mey or rd . INDEX 4 oe 7 , > ge . ar PAGE - Opinions Below ~--+23_-_-~-~--- naceiacinubaads | Jurisdiction ae me eee coiesatnindaael an ae Questions Presented eR Naseer SERS Oe Statiites Involved __..--._______--_______ 3 Ek A SEL ROD aoc” me e ‘a , j —— ad Reasons for Gratiting PIII cacnascnintasbticbepinisdeen 7 _ Conelusion’______--____ awn Jicbiuiseeneanepesiaintiess 20 ° Appendix: 2, i Leanne A. Order of DidtrietCou ae ae ‘la Opinion Below a cieciimeicacchacninag sien nies * da Qpinion, 241 F. 2d 374 __:---__-____ ja ae . Judgments Below *___—- CT: B. Statutes Sead ilicarcees eRe eee ...Jb, 2b* ¥ oe | Cases: ' Akticbolaget Kruec ger & Toll, In.Re‘(2nd Cir. . ok | ee Ty American Fuel & Power Co., In: Re (1941) 193 F. 38 38... = ese n- eon e n-ne - =. 3 Ainovitens Tron Co. V. Seaboard Air Line _ (1914) 233 U.S. 261 ‘palin Relic adinibia oamaaa sane 12 ' Board of Commissioners ¥. Berdurdin (10th Cir, 1984) 74 F. 2d. 809, cert. denied (a8). ae U.S. GS te... - >... 12 a, \ i PAGE — Case | * Los yay Sumked. Products Co, +4 Ltded 1939) 308.U.S. 106 © _ » City of New York vy. Saper oe 336 U. ss. henna ME Columbia Gas & Bleetric Susi v. United States, et al. (1945) 151 F. 2d 461-Teh.: . denied (1946) 153 F. 2d 101, cett. denied (1946) 329 U.S. 737 lies coekiieeeeehie. 3 ; Consolidated Rock Products Co. v. Du Bois (1940) 312 U..S. 510, 85 L..Ed. 982, 61S. » Deep Roek Oil Corp., In Re (10th age ay, 113 F. 2d 266, cert. denied 311 U. S. 699, 61S. Ct. 138; 85 L. Ed, 453 + yt, 12, 13 Inland Gas Corporation, In Re (1951) 187 F. ae: i OF 8. : Inland: Gas Penielition. In Re eihsd) 2 211 Reis X. 2d @B1, cert. denied (1954) 348 U. 8. 840 5 - Inland Gas Corporation, In Re (1957) 241. _S « & a Bad, cert. denigd petites 399 U. . ». a | pe ens vilogenc Tenis ease ae 0 ae te facomh Trailér Coach, Tn re (ath Cir. » 1952). a 3 200 -F. 2d 611, cert, dented (WSBY B45. UsS.958 2 & eee. UG | Massuchusetts v: Bhowigeon Chst’ Cir, 1951) ‘S\ 190 F. 2d a0, cere: denied cae 342 U.S. - 918 lin . Ne cw York v. Feitherg (2d Cir. 1953): 20 F. ' 3a 32 5 . —T4n Northern Pucifiy Py. Co, v; Boul ss ouige! i 228. U.S. 482 Fone. ae ve Prodcr et Realization Corp. v. Geist (1942) 316 a at ace a of Sains 9 is @e? 7 ~ iii e o* ue .. aa a PAGE Spring Sian Co. v. Keech. (4th Cir. 1916) 239 . ae |" e 48 arent en conn emer 7 12 Cir. 1954) 212 F. 2d 865, cert. denied (1954) 8 gE SEES eee Taylor V. Standard ies d: Electric. Comp any 1g hele 83 L. a 59 S, Ct ieee 2 oy 2 ‘i v. Industrial Comm’r (2d e 3543 Sia oe ere as ee x Hh - United States v. ; eis (4th Cir. 1981) | 189 F. 2d. 876, aff'd (1952) 342 U.S, 912 .,. cae “Un ; United States. v. General A ae & Mfg. ~ Co, (8th Cir. 1951): 188 F. 2d ™ Pa (1952) 342 U. S. 912 | : oe sake? ny v stom Green (1940) 309 U. S. 156 16: "Statutes: Err es a oat a +, i Bankruptcy Act, 52 Stat. 840. (1938), ake U. S. C..1 et: seq. (1952) : # Section 129, 11 U. S. C. $y 1 (28) Os. ee Suction 63a (1), 11 U, S. C. 5 103a(1) eee pe \ Section.102, 11 U. S..C. § 502-222-2215 Section 197, 11 U. S.C. §.597 2.2, 18 “Section 216, 11 U.S. ©. § 616 ._--- App. 26 Scetion 221, 11 U. 8. C. § 621 __ -___ App. 26 Mise ibinataie ) Erie Doctrine in Bankruptey, 66 Harv. Ie. (1953) 1013, 1020-4 mews nn senna ances. 7 ‘P ost-Bankruptey Interest in (Trapter X Reor- -" nization, 67 Yale‘L.J, (1958).1131 . > a> ¥ -” Recorp REFERENCES P a . as Petitioners have not filed a transcript of the record _ -in this.cause, but, in lieu'thereof, a certified copy of the °. fppendices filed by all parties below, has been filed as permitted by paragraph 3 of Rule 21 of the Rules of , this Court together with a statement of the: proceed- ings: iy the court below. Included in the statement of proceedings are copies of the motions to dismiss the -appeals together with the exhibits to those motions. Accordingly, all: citations to the record of this cause - are to:'the various appendices filed below or herewith | or to the exhibits to the motions to dismiss the appeals below, which are identified by reference to the party _ filing the same. er IN THE . ros Supreme Court of the: Auited States: : OcTOBER Tek, 1958 ; pest : ( No. —------ --. a : . - CHarres J. GREGORY AND OLypE L. Pavt, As A COMMITTEE FOR HOLDERS OF KENTUCKY FUEL - -Gas CoRPoRATION, 614% DEBENTURES AND THE ‘VANSTON Bontuoipens PROTECTIVE ~ COMMITTEE FOR Hopes OF First MORTGAGE Bonvs oF. Kentucky Fuet Gas Corpora- TION, - SMe Us.” - Petitioners, -‘ THe CotumBia :Gas System, Inc., Ben | - WILLIAMSON, JR., AS TRUSTEE OF INLAND Gas |; - CORPORATION. AND OF KENTUCKY FUEL Gas .. CORPORATION, ET AL., . a. PETITION FOR WRIT OF CERTIORARI TO UNITED STATES COURT OF APPEALS FOR | THE SIXTH CIRCUIT a | : Tina petitioners, ‘Charles J. ‘Gregory, et al.,.a Com- | . mittee representing holders of the debentures of the - Kentucky Fuel. Gas Corporation and the Vanst ndholders Protective Committee representing bold : of first mortgage bonds of said corporation réspect- ly ‘pray that a writ of certiorari be issued to ‘the Waited States. Court of Appeals for the ‘Sixth Cireutt * - to review the order and judgment ‘of that Court ren- dered in the above caitse, affirmin an order of the District Court of the United. States for the Eastern ' District entucky. ; | \ Res pondents. | - ees . . , ; ‘ } ; ‘ ke * eae - Opinions Below yr TH District Court (Ford, J.) wrote no option, Its order, dated June 2, 1958, appears in. Appendix A, ‘hereto p. % The opinion of the Court of Appeals for the Sixth Cireyit4 not yet repofed (Simons, J., with 2 Miller and ais JJ.), appears: in’ Appendix. A, p. 4a together with fhe earlier opinion of the Court of Ap- peals Which is reported at 241 F. 2d 374, and!is wer (| i oe sacle A beginning at P Ta..." @ Q oe ee phe judgments of the Court of daeeile were ‘en- a . tered. January 15, 1959 and .are printed ‘helow in _ Appendix A at pp: 33a-! 36a. ‘The jurisdiction of this : Court is invoked. under 28 U. S.-C... §1284(1), and 11’ » =, S.C. thighs a - Questions Presented oe © W hs in a reorganization under Chapter Xof Ff the B Bankruptey Act (1r U. 8.- -C: Sees. 501-676) an . ‘interest: bearing claim on first mortgage bonds was sul- FF _ordinated On ‘equitable grounds to an interést- bearitig F unsecured élaim and the assets available under the plan ‘ _ to pay creditors .are more than sufficient to pay the: principal of. both claims, was the coust belo ‘correct. holding’ that thivexcess assets, as'a matter pe ‘should be applied te post-bankruptey interest on the subordi- — uated _mortgege: claim ‘and that no ‘post-bankruptey” interest. was yable on. the oe-wahortinated clainft “4 a 4 LI, Was the’ court low’ correct in refusing. to : direct equal treatment 1 utder the plan of reorganization for the «laims ie petitioners: and those of the notes of Ameri ional F vel & Power C ‘ompany despite the fact. that ; f -. ‘ . $ . e $+ 6 hs : ° , et ae + 5 r . 8. = 3 3 F i “ ° . * «6 . . ad o ° eat “the claims eannot be Mettnguintion from eac ‘h other for : all practical and legal purposes ? a ‘ "Statutes Involved ~The pertinent provisions of the Bankruptey ae’ are ‘set for th in ’ Appendix B hereto, tn — s Statenient. BS Bees of the, equitable conduct of: Colunibia Gad “By “stem, Ines erly Columbia Gas & Electric Cer- “poration (**Columbia’’) against a wrongfully acquired competitor, Columbia’s. claiins against the competitor. ; _have by-court order been subordinated to the claims of , - publicly eld ausecured funded debt of ie competitor. : The- petitioners’ are public. committees represehting , hilders of this debt... Columbia, in additiow teacquiring’ dhsecured claims against the competitor, also ae quired large amounts of its first mortgage donds’ with .the intention of eliminating the eompetiter by obtaining ‘its praperties npon foreclosure sale in dn equity receiyer- - - o re) ‘shyp whi h it thereafter caused to be Wnstituted by the 7 fing of % creditor's bill ina, Federal court: Tv Ré America ‘Fuel & Power Co. (¥941). 122 F. 2a 223; Columbia Gas & Blectric Corgey. United a1, et i . Ol, cert.” (1945) 157 F. 2d 461, reh, denied 153 F, 2d 1 denied ( 1946) 329 U. S. oe ® “Asa practical matter: ee only: creditors of the com- petitor are (1) the claims ofgsuch ulisecured public ‘ly keld debt and (2) Columbia’s claim on the w fongfully | acquired mortgage bonds. The assets of the competitor available for its creditors aré sufficient to pay the prin: cipal of this‘ publiely held unsecured, debt and the principal of Columbia's bonds and also to prpvide a_ large additionaf balane e, “The court below lield that‘as , Se 7 ; “s o Fv debt. The competitor is Inland Gas Corporation (* In- _ land’’), a part of the American Fuel & Power system a matter of law the subordination did not apply to interest on the first mortgage bonds acquired by Colum- bia ‘and that accordingly the above-mentioned balance was payable to Columbia on account of Bond interest rather than as interest on the publicly held unsecured ind the principal’ operating company of that group. * Ainerican Fuel & Power Company (‘‘Américan’’) is principal stockholder of Inland and also of Kentucky » Fuel Gas Corporation (**Kentucky’’). Shortly prior to the equity sreceivership Columbia also acquired “securities giving it control of the American and Ken- tucky companies with a view to eliminating the com- petition of the American, system. The Inland Gas Company, in recent years has’ been extremely pros- perous but is not solvent. The claims to which Colum-— bia’s first mortgage bonds have been subordinated are the claims of the publicly held bonds and deben-4 tures of Kentucky and of the American Notes, which have been allowed as claims against Inland. It wat ‘because the interrelations of American and its two sub- sidiaries amounted to almost complete integration of ' their activities that the court below thus ‘subordinated all of Colimbia‘s claims ‘against Inland, both seciired "and unseenred, to the claims of the public creditors of Kentucky. It declared these creditors were quasi . eveditors of Inland and also that the public heMers of American Notes were algo quasi creditors of‘ Tnland. These -notes. are secured by approximately 73% of the stock of Inland. 26%. of the Inland.stock is owned by Kentucky but not pledged although, as the principal - creditors of Kentucky, the petitioners have first ¢laim ‘gainst all NenTucky-assets.dneliding the Liland stock. The plan having found, Inland insolvent, its stock has we ar - ‘5 no value, See In Re Inland Gas Corp. (1951) 187 F. 2d 813; MW Re Inland Gas Corp. (1954) 211 F. 3a 381, cert. denied (1954) 348 ©. S. 840; In Re Inland Gas Corporation (1957) -241 F. 2d 374, cert. denied (1957) 355 U.S. 838, rehearing denied (1957) 355 U. Sy 879. When on December 2, 1930 the Federal court ap- pointed an equity receiver of Inlané it likewise pointed’"an equity receiver of Kentucky. T proceedings continued until October 15; 1935. when a trustee for each company was appointed under Section « 71B of the Bankruptey Act (48 Stat. 912) and the 77B proceedings on June 22, 1938 were transformed. into proceedings under Chapter X of the Bankruptey Act. . The American Fuel & Power.Company has been subjected to 77B proceedings or Chapter X proceed- The lower Court at 241:¥. 2d 374 (1957), in hold- ing that the public creditors.of Kentucky were not en- titled to post-bankruptcy, interest prior to the payment of principa} on the subordinated claims .of Collimbia placed ‘primary reliance upon 'City of’ New York v. ' Saper, (1949). 336 U. 8. 328, evident) believing that the latter case, which denied post-hankruptey interest on a tax claim, presented an insuperable obstacle to - post-bankruptey interest on petitigners’ claims. At the same time, the Court of, Affpeals failed to disturb those provisions 6f the plan 6f reorganization which " awavded full post-bankruptey intérest on the claims of the helders of American Notes.* ‘e cin ‘ : , os ; *In that appeal no pdfty objected to provisions of the Plan awarding post-bankruptcy interest on the American Notes since it Was at thet time the contention of petitioners that all public crediter- ‘including petitioners and the American’ Notes} were entitled to such ~ > at oy Bm 4, el’ There were 7 separate petitions for certiorari filed .by various parties (including petitioners herein) as a result of the opinion in 241 F, 2d rejecting the then proposed plan and returning the case‘te the. djstrict court. Those petitions involved a multiplicity of TRsues in addition to the question of petitioners’ right to. post- . bankruptcy intenest*prior. to payment of the principal * of Columbia’s subordinated claims. . All of the ‘peti- . tions were denied, 355 U. 8. 838 (October Term 1957), Upon remand to the district court, a new Plan of Reéorganization* was prepared by the Trustees. ‘That Plan provided in part thé: after payment. of the prin- | _ ¢ipal of petitioners’ claims, all remaining assets of the Inland. estate would be turned’ over to Columbia far _ payment on account of the principal, plus. post-bank- ruptey interest on its mortgage claim, despite the, fact that this claim had previously been ardered subordi- nated to petitioners’ claims,. The Plan, nevertheless, --while denying post-bankruptey interest on petitioners’. claims, continued*to provide for full post-bankruptey interest on the claimg of t e American Notes, despite. the fact that the collatefal securing the American Notes, i.e., Inland: stock, was worthless thereby ren- «. - dering the American Notes for ail practical purposes unsecured-—Appeals were taken to the Court of Appeals’ by petitioners and others. Motions were-made to dis- miss these appeals and the Circuit Court of Appeals. handed down the opinion appealed from (App. A )P 4a), dismissing the appeals and. affirming tlie judg- ment of the district ‘ourt confirming the Plan of Reorganization. The ‘petitioners. now bring up this .. appeal on a tinal order. a ee A - * Exhibit R, Harbisort Motion to Dismiss filed June’ 25, 1058 oe i:* , 7 On May 1, 1958, the Securities and Exchange ('om- mission, pursuant to its statutory duty under section | 172 of the Bankruptey Act (11 U. S. C. $572) issued its Third Advisory Report in these proceedings (In Re Inland Gas Company, Corp. Reorg. Release. No. 109, Docket No. 121).* The &. E. C. found:that the Plan of Reorganization yas unfair ty petitioners. The decision _of the court helow.whs contrary to the Ss. E. C. Advisory Report; spt pa Sek alla e. Reasons For Granting The Writ POINT I The decision of the court below holding that a sub- ordinated mortgage claim is entitled as‘a matter of law to post-bankruptcy interest prior to post-bankruptcy in- . + terest ‘on a ‘non-subordinated unsecured claim raises questions of great importance in the administration of . the bankrupicy laws, and is contrary to well-recognized - ules of law. , , y (a) Thecimportance of the issues we .'. \ ". the basic questions ‘are : . Ped Be rei What are the rights of an unsecured ‘‘ Deep Rock" claim to wKich a secured claim of a controlling wrong- doer has been subordinated? Does subordination ipso. facto deprive the unsubordinated: unsecured clajm of interest ?” The importance of-the problem need only be shown by the number. of Deep Rock ‘claims which have arisen. See Erie Doctrine in Bankruptey,66 Harv. L. - Rev. 1013, 1020-24. : . There has been no- holding in these proceedings that the principal of thesecureddebt held by the wrongdoer _* Exhibit K, Harbison Motion to Dismiss filed June 28, 1958. : : ‘ t. s Columbia has a lien position senior to that of the prin- cipal of the publicly held unsecured debt of Kentucky. Iystead, the holdings herein clearly mean that. the prin- vipal of the former is ‘subordinate to the principal of the latter. The necessary consequence of the subordi— nation of Columbia‘s s claims against-Intand (including __ its seeured claims ) to ythe claims of the public unsecured creditors of ‘Kentucky and American is’ to deny to Columbia any status or senior rights;as a se“ured ered: itor, “All other holders of Inland secured debt. live ,tilready .been fully paid and are no longer present in these proceedings. Hence we have under the plan the” anomalous situation of the subordinated, principal held - ‘by the wrongdoer producing priority interest. Le., inter” * . est which. outranks the claims for interest ou the new subordinated publicly held debt. ‘The Plan shows that . the “prine ipal of Columbia's secured claim’ agaist Tnjand amounts to $1,571,000-¢Plan, p. 5) and Colum- bia rec vives under the Plap "9.021, 376 (Plan, Exhibit F). The differencé of approximately $1,450,000 s qpoust het go to it on fecopint of interest. This amoynt*niust vecessurily appertain to the prinejpal ¢laim which has ten adjudicated superior to that held by 4 ohunbhia, i.e.) the public ‘ly held Kentue ‘ky debt.. : ~~ se o ‘We Aonttend that where one evaditor’s ¢laim has net | been rejected, bitt is only-subordinaté’ to that of an- othfer, there can be no absolute requirement for the application 6f the so-called Saper doctyine. For exam- ple, assume an insdlvent Chapter X debtor (1) has «ut- standing 1.000.000 of unsecured debt hearing ge - interest per annum; (2) that $500,000 of, this debt is subordinated in terms to the other $500,000; (3) that there are sufficient Junds to pay off the prine ipal of all the delit; (4) that post- aaa v interest amounts fo -~ wT luis. saying at 312 U; ».. ‘~ | y $100,000 but the tuoi available for such interest amount-to only $20,000; (5) that the only other seeuri- ties outstanding are stock owned -by third ies and (6) no equities hgve arisen by wrongful acts of sécurity - “holders. We beheve that the non-subordinated $500 should receive the $20,000 as interest. However, unde the decision of the court below a contrary. result ¥ required, — “ ¢ ; eae _A final determination of the above-mentioned ques- ‘tion of law is of. great importance in reorganization under, the Bankruptey Act and in the framing of re- organizat ion compromises. American Iron & Steel Ufo. Co. ¥. Secboard Air Line Railway (1914) 233 U. 8.°261, in stating that a claim for interest rises fo the same rank anid dignity a~ ' the claim far principal to which it relates, to us seem- ‘allied in theory with Consolidated Rock Products. Co. vy. Dy Bors, (1941) 912 U.S. 510, where this Court made | it clear that Tnterest on debts of the debtor continues to ‘run during reorganization and rises *to the same dignity eye the principal to whick it relates. In fact, failyre to make adequate provision. for’ interest was held in that case, 10 eiolate the strict priority, rule of Northern . Pacific Ry. Co. v. Boyd (1913) 228 U.S. 482 and. Case \. Los Angeles Lumber Products Ca. (1939) 308 U.S 10 and constitute reversible error. “Aithongh the Crv- sulidated Rock«Products éase was concerned largely: Wit) Séenred claims there is nothing to indicate that the rules there established are so limited. In that case the Court itidicated that: a claim for interest is entitled to the same prigrity as the principal to which it relate~. a> “nyraiist a peeing stockholder holding secured N27 : 10 ° “Tn the first place, no prov ision is made for the _ accrued interest On the bonds. This interest is en- . titled to the-same priority as the principal.: See a ~~ American Tron Steel Mfg. Co. v. Seaboard Air ~ Line Ry., 233 U. S. 261, 266-267 ; Ticonié- ene Bank v V. Sprague, 303 U. ‘S. 406. ” In that case the parent ipditing company was subor-- dinated ’ ‘in its claims against its two subsidiaries to all other creditors Of the subsidiaries. In. subordinatirig ‘the claims +. the parent, Consolidated, the Court said’ | SI . at p. 520: eee Tt is plain that the scuttle fof the subsidiaries] would have, as against. Consolidated and its stoekhdlders, prior recourse against any unmortgaged assets of Untorand Consumers. The. - and. absolute, priority rule of Northern ‘Pacifie Ry. Cow. Boyd, 228 U.S. 482; and Case v. - Los Angeles Lumber. Products Co., supra, would preclude participation by the equity interests in anv of. those assets until the bondholders had been | mide — FS The language of the court in the C onsolitated Rock — Pradycts ease, as we read it, and as applied to the instant proceetlitigs, says that the absolute priority rile r requires that before the suber dinated claims of Colum-. | bia may par ticipate in any plan of reorganization of the debtor, adequate provision “must have been made for: the payment in full of principal and interest of -the Kentucky debentures.. The failure to so provide Would involve a:violation of the absolute priority rule in Chap: ter X. pepo and constitute reversible error. See 312 U. S. 510, 523. See also Ty re Aktieboluget ; Krueyer i oe (2nd Cir. 1938) 96 F. 2d 768. The - eftect of the lower-courts’ holdings herein is not only y 6 SS oe > to permit the subordinated creditor to recover the prin- cipal of its claims but, in addition, to permit the subor- _ dinated creditor to recover post- -bankruptey interest thereon while denying all such interest to petitioners’ non-subordinated claims. The novel rule thus estab lished by the court below deserves consideration and etaluation by’ this Court. ee | / . - Me (b) Conflicting Resinions of Courts of heguid We believ e that the holding of the Court of hiate in n its latest opinjon and in fw Re Inland Gas Corpo- ; “vation, 241 F. 2d 374, is in conflict with the: decision in In Re Deep Rock Oil Corp., 10 Cir. (1940) 113 F. 2d 266, vertiorari denied Standard Gas. & Electric Co. vy. T aylegs (1940) 311 U.S. 699. That decision confirmed a plan following an earlier Suprenie Court opinion in the same. proceedings, Ta ylor v. Standard Gas & Elec- trie Company, (1939) 306 U. S. 307. The plan dealt with the following ‘claims against Deep Bock: $10,000,000 principal amount “of publicly held notes, — $5,000,000 par amount of publicly held preferred stock and a large debt claim held by Standard Gus & Electric Company (the wrongdoing parent), which claim was subordinated to the notes and preferred stock. “The ° opinion of the Supreme Court at 306.U. S. 307 was eon- strued to. mean that interest should be paid on the : publicly -he]d notes, and as-a result Standard was al-— lowed no participation in the Deep Rock assets: The eee on which ‘City of “New (York v. Saper, 336 U.S. 328 (1949) is based, such a Section 63(a) (1) of the Pankruptey Act. (ii 2. 8. €* 103 (a)(1)), were in the -main existent when the Dec) Rock ease was dec ided. As we-constmi, the holdings 7 lee . mw: ad in the instant case, the moneys used in Deep Rock to pay the interest on the non- -subordinated unsecured ublie claims should instead havé been used to pay down the subordifiated general claim of Standard. — THe court below, we believe, recognized the contlict ‘between its, decision at 24] F. 2d 374 and In Re Deep *Rock Oil Corp. supra, in its followi ing comment on that case: ; ‘sIn re Deep Rock Oil Corp., 10. Cir., 113 F: 2d 266, certiorari denied Standard Gas & Elee tric Co. ' yy. Taylor, 311 U. S. 699, 61 S. Ct. 138, 85 L. Ed. ° - 453, lends some support to appellants’ contention. How ever, the ruling is based largely upon three : cases, one of. which was American Iron & Steel. Mfg. Co. v. Seaboard. Air Line Ry., supra, 233 U\S. 261, 34 S. Ct. 502, 58 L. Ed. 949, which ig \7 secured claims rather than unsecured claims, and. two cases involving interest on tax claims which were decided contrary ‘to and prior to the ruling — in City of New York v. Saper, supra. These cases - furnish no real support for the ruling.”’ 241 F. 2d 374, 383, app. A. ” 26a, 27a. We know. of no case other than the instant ore where a Cdurt has held that post-bankruptey interest will be paid on a ‘“‘subordinated”’ claim prior to the - payment of interest on. the “‘non-subordinated”’ elaim.. The following cases clearly stand for the rule that a claim for interest rises to the same rank and dignity as ‘the claim for principal to Which such interest relates: . _ American Iron & Steel Mfg.Co. v. Seaboard Air Line 5 ay, (1914) 233 US S. Wl, Board of Commission- of Sweetwater County, W yo.v. Bernardin, 74 F. 2d‘ 809 (10th Cir. 1934), | cert. denied, (1935) 295 U.S. _ | 731; pring Goal Co: v. Keech, 239 Fed. 48 (4th Cir. 13 1916). ‘Despite contrary assertions by Columbia and allusions thereto by the court below, it is yuite clear — that the latter cases have not been overruled by the. Saper case supra. The last two cases were not de- cided Within the structure of the Bankruptey Act but were insolvency or receivership cases commenced by a bill in equity. Their strength, however, lies in their _ application of equitable principles and equitable prin- : ciples, of eourse, apply under the Bankruptcy Act. - Although’ the actual claim involved in the former case. _ (American Iron & Steel M fg. Co. v. Seaboard: Air Line Railway) was in the nature of a secured claim (a mechanies’ lien) there is no reason to so limit its im- _ pact. Moreover the actual claim inv olved in Deep Rock was itself unsecured. The conflict with Deep Rock is basic and Sipect and involves much more than merely the separate evaliia- tion of equitable considerations by two different Courts. of Appeal. It is not insignificant to note that in oppos- ing the several petitions for certjorari from an earlier opinion of the lower court in tfese proceedings. (241 F. 2d 374) Columbia s ted the nn at page '20 of its brief’ to this Court.* “In re Deep Rock Qil Corp. 113 F. 2d 266.(10th ’ Cir.) cert. denied, 311°'U. 8. 699 (1940), held, rely- ing, infer alia, on Spring Coal and Bernardin, supra,. that priority principal ° determines pricrity of — on unsécnred claims.” That question is exactly the | issue here pr esented, and the issue on which the court below is in conflict - With the Court of Appeals for the Tenth Cireuit. . * See Canmiiined Brief of the Columbia Gas System, dated September 9, 1957, filed i in Nos. 325, 336 and 342 of this Conrt. ‘involved the question of payment of intérest on tax . claims, which have followed and relied upon Saper*. the impact of the Sa per case is as follows: to the Bankruptey Act upon. claims for taxes i in straight _ alter or'modify them; "10 (Ast Cir. 1951), cert. denied, 342 U. S. 918 (1952) ; United States to A, Tey ed a. a es ‘The Court of Appeals has placed undue emphasis upon City of New Fork v. Saper, supra, a case which ' ¢laims, and upon other cases, all of which involve tax | “We believe that it is very plain that Saper was not intended by this Court to affect claims for interest other * than claims for interest on taxes. It is suggested that (1). The Beper case involves no more than aco: 7 struction of the effect of the 1926 and 1938 amendments bankruptey proceedings; & (2) ‘Sa per, although wiivcicibigs to state the. pin rules applicable to the question of post-bankruptey in- terest, did not purport to change in even th slightest degree any of the rules regarding the payment, of post- bankruptey interest as developed in the numerous prior © decisions of United States courts. Saper was merely an attempt to apply these Tules and not an attenipt to o (3) The Court in Saper was largely concerned with the inroads that taxes and interest thereon made in the - fund available for creditors in bankruptcy. proceedings | and noted (336 U.S. at 329, n. 5) that the question was ' of considerable ‘practical importance i in the administra- tion of the Seamrupiey Act; . Sidord Line, Ine. Vv. Industrial Cosine, 212 F. 2d 865 (2d ce 1954), cert. denied, 348 U.S. 830 (1954) ; ‘New York v. Feinhergs 204 F.2d 502 (2d Cir. 1953) ; Massachusetts v. Thompson, 190 F. 2d." ve Edt nS, 1s9 BF, 2d 876 (-4Hth Cir. 1951); aff'd, 342 U.S. 912 (1932); —tCnited States y. General Enginecring & Mjq. oe 188 F. 2d 80 ol | . Cir. 1951), aff'd, 342 U. 8. 382 (1952). 2 15 4) i assimilating taxes to other ‘debts for all | purposes’ , the Supreme Court thereby recognized the “legislative intentio » modify theriority of tax claims for the purpose ‘o reducing the claims for interest ’ thereon vis a vis the claims of general ereditors. The _ fact that. the Supreme Court construed the priority __. given to taxes as: not extending to the. inter est thereon. : under Section 64(a): ofthe Bankruptey Act.(11 U.S.C. § 104( ‘), (a.section which; incidentally, is expressly " inapplie blevin Chapter X (Section 102; 11 U. S. C. §502)), has no application ‘to the ‘status of non- tax priority claims, the recognition of whick is not affected. ~ by Section 64. The plain fact is that in assimilating oe tae taxes to other debts, the Supreme Court was assiniilat- . ° = ing taxes to unsecured debts having. no pr iority and there is nothing i in Saper which implies that all aims otherwise entitled ito priority should likewise be“aj apsimi- s. 4 lated to other debts having no priority. . — / . Petitioners’ views as to the impac t of ity me Néw | York v. Saper, supra, and as to the corr “tness 6f the » deci ‘sions of the court below are in aeeoydance, with the - | views expressed in recent: law review comment on the — case at 241 F. 2d 374. See note, Pos Bankruptey Tn- * terest ing =— x Reorganis a i 67 Yale. rf J. 1] 31 (j 1908) § f € Meme: _ The issue here’ avbbenivak ! te: whether® Ad pio | E nated claimant is entitled, f payment, of * ‘post-bank- ° ruptey ‘interest prior to payment of p bankruptes ae interest on non-subordinated unsecur ‘ed 3 Wuisis one of great importatice in the administration: of ‘the -h; gnk-- : ruptey laws and one which, although, we believe, ‘nplic - -itly treated,in leaging decisions: of this Gpurt,, has not age been expressly considered and settled. As shawn above. of : to the extent that this issue: has: been considered’ ‘by the me , ow oy ‘arious courts of appeals, the decision below has res ‘ sulted j in conflict among the circuits... ” . cise its equity. powers to allot funds avafl ble for post- ; bankruptey interest to unsecured creditors: rather than. “16°. Unless certiorari is ‘granted herein,. we fear that the Saper case may be held to mean that a banktuptey reorganization ‘court under no cireumstan smay exer- to a subordinated secured cregftor. If'the Saper case is’so construed we believe that it would ov errule’ the following language from Vanstoh iGreen ( 1946) 329 7 U.-S. 156 where this court dealt with the payment of*. interest on interest on the Inland bonds. “Tt is manifest that the touchstone of each de- cision on allowance of interest in bankruptcy, re- ceivership and reorganization lias been a balance of equities between. creditor and’ creditor or be- tween creditors and the delitor. See Sezton v. _ Dreyfus, supra, at 346. ‘That the proce eedings be- fore us have moved from equity .receivership . thaough § 77B to Chapter X in the. wake of statu-: tory change does not make these equitable ‘consid- erations here ina plicable. A Chapter X. 7B. : reorganization urt is just as much a court of - equity as,were its statutory and chancery antece. dents. See Consolidated Rock Produéts Co. v. Du Bois, 312. U.S. 510, 4 i Sad U. S. at 165), POINT ie The refusal of the court below to order onl treat- ment for the legally indistinguishable claims of peti- tioners and of the. American Notes is contrary to the : basic principles underlying @? Bankruptcy Act. The Plan provides that there shall first be applied . to the American Notes assets of American available for that purpose. The balance ’due on these Notes, ° a ae | ieluding full post- -bankr uptey inter est « on said Notes to date, is then to be paid out of the Inland assets. ‘Under the valuation accorded. the assets of American, it is. " apparent that ‘in order to pay post-bankruptey interest on the American Notes a s@bstantial portion of the Inland estate will be drawn upon. We contend that the * granting. of such post-bankruptey interest eannot be justified while such interest is deniey the publi¢ cred- itors of Kentucky since no significayt legal distinction . exists’betwéen the claim of. petition org.and the ‘claims , of the American Notes: | (a) Both claims were awarded quasi-creditor status and received their, recognition by virtue of the lower. courts’ decisions subordinating .Columbia’s claims to ®, . the claims of the publi¢ creditors of rue Inland | and Kentueky ; . (b) Both claims, for all realistic purposes, are un- woael. Sphe*Am rican Noteholders, it is true, have the benefit of a pledge. of approximately 13%: of the. ' stock of Inland.* Admittedly, if the73% of the Inland stock has value, then all of such value inures to the ~ benefit of the American Noteholders’ claims. How-. ever, since: the plan expressly states Inland ‘is $ ‘insolvent’ this stock is worthless and-no significance attaches by reason of the asserted pledge. Moreover, sinée peti- ~.tioners are entitled to primary participation in any assets owned by. Kentucky, their rights in the Inland * It should be noted that even if the American Noteholders’ as- /« sertions as to the validity of the plédge are true, they cannot be .con- sidered as secured creditors of Inland since. Section 1(28) of the Bankruptcy Act (11 U. §..C. § 1(28)) limits the definition of a secured greditor to a creditor who has security for his debt upon thé property of the bankrupt. A secured creditor is not any creditor with oo but only a creditor’ with security upon property of the ankrupt. . oe “3; 18 . 2 ; : stuck owned-by Kentucky are, coextensive with the rights of-the American Noteholders in the Inland stock owned by American. Under the rules adopted by the court below, and by edurts generally, the holders of “American Notes would be entitled to post-bankruptey ‘interest only if their holdings of Inland stock or the income therefrom were valuable enough to cover both — principal plus interest, In re Inland Gas €orp., 241 F. 2d 374, .cert. denied 355 U. S. 838 (1957); Jun re Macomb Trailer, Coach, 200 F. 2d 611 (6th Cir. 1952) cert. denied, 345 U.S. 958 (1953). This is also the’ cleam meaning of Sec tion 197 of the Bankruptey Act: (11.U. 8. ©. 9 597). *'(¢) The claims of petitioners and of the American | . - Notes both result fronr Ihanis of eash to the respective debtors by innocent, public creditors. In both instances the cash was used for the benefit pf the Inland estate. Thus, thé equitable as well as, the Segal rigats, of beth classes of creditors are the sage. To allow pogt-bankruptey interest on the cclainis of the Ameriean Notes while denying post-bankruptcy interest on the legally identical claims of petitioners casts doubt uyion the. most basic principles of bank- ruptey arid: corporate reorganizations which require. that creditors of the same rank and priority be given equal treatment. Under the law this coneept of equal freatment for equal claims i is one ¥ ichs | as found ex- pression in numerous cases decide he Supreme Court of the United States and by cgefrts‘of the various cireuits. Accordingly it is submitted that in failing to " require equal treatment for tle American Notes anid tly claims.of petitioners the deci ‘ision below thréatens well: established principles of law enunciated by this Court, 19 see Prudeyce Realization Corp. ve Geist, 316 U.S, 89 ’ (1942); Case. y..Los Angeles Lumber Selah Co., Ltd., 308 U, §. 106 (1939). - This question of whether- a creditor holding worthless collateral may be accorded preferred treatment over another creditor of equal rank | and dignity is oné of grave intportance tothe impartial and orderly administration of the bankruptey laws. Equal treatment for the American Notes and peti- _ tioner’s claims requires one of the following results: (1) Both claim Should be — post-bankruptey inter@t; or ( (2) Neither cnalin should. be granted ssalieatl muptey interest. Recognition of the foregoing must necessarily in- - volve consideration .of the moregeneral question whieh pervades these proceeslings namely, whether post-bank- ruptey interest may be paid on the claims ofan unse- cured creditor prior to payment of principal on account of the claims of a suborlinated creditor whose subordi- nation hae resulted from grossly inequitable conduct causing irreparable damage to other creditors. This broader question of post-bankruptcy interest was one of the questions presented to this Court in the severab prior petitions for certiordri resulting from the opin- ion of the Sixth Circuit Court of Appeals at 241 F. 2d 374 where it rejected a plan. At that time the decree of the District Court then under consideration was not a final order. The decree here involved is final and the present proceeding is the last opportunity available to . petitioners to seek clarification of the important ques- tions here involved. . ; 20 é ; ? . S ‘ : - Conclusion . f . For the foregoing reasous,, this petition for a writ of certiorari should be granted, ee ay. Respectfully submited, Wiuikin Parr GALLAGHER w ALTER H. bins , JR. Watton & FirzGippon, Kenneru J. Bratkrn | : 15 Broad Street c New York 5, N. Y.. seats & & Surru, — L. Smitn . * Of Counsel. Catlettsburg, Ky.. , ; Counsel for Petitioning ry . * * Committee for Holders of. = - Kentucky Fuel Gas Cor- poration Debentures — ee eae \ , ay .« Minpankx, TWeEEp, - Georce W. Jaques Hope & Haptey, » — 15 Broad Street Ss Of C ounsel..” i New York 5, N.Y. a eye Counsel for Petitioning Oa ee: Vanston. Bondholders . Committee. ‘ Dated: Mareh 11,1959 : gru G& ; \ a) ‘s o 2 .—/ P la APPENDIX A> ~ aw Order of H. Church Ford, U.S.D.C.J. dated June 2, — from which.appeal was taken to United States | Court of Appeals for the Sixth Circuit. On May 28, 1958, pursuant to recess taken on May 9, _ 1958, as yee 2 in qn order entered herein on May 13, ah 1958, and purSuant to lawful. notice, this cause came on for the consideration. of the confirmation of the — “Plan of Reorganization dated February 25, 1958,”’ as amended by. an order entered herein on April 7, 1958, Which Plan had been found by this Court to be fair and equitable and feasible under Section 174 of the . Acts of Congress relating to wee tanay + Phereupon Ben Williamson, Jr., Trustee of Inland . Gas Corporation and Kentucky Fuel Gas Corporation, by-hig counsel, tendered and asked leave to file the ac- . eeptance dated May-16, 1958, of said Plan by The Co- lumbia Gas System, Inc., together with a-proof of: claim attached thereto, and, it appearing proper so.to do, it is ORDERED that the same be filed herein. _ Thereupon said Ben Williamson, Jr., Trustee, by | his counsel, proposed that the first sentence of Section 1 of Article XII of said Plan, relating to tax ruling and closing agreement, be amended by deleting the words ‘confirmed by the Court’’ and substituting therefor the word “consummated, ’* and The Columbia Gas Sys- ‘tem; Ine., by its counsel, havi ing no objection to said amendment, and it appearing that said amendment does not materially and adversely affect the interests of creditors or stockholders, it, is ORDERED that said Plan . be amended as proposed... ° a Thereupon the Court heard argument of counsel for various parties with respect to the confirmation of said ‘Plan and the objections thereto, ane at. the conclusion 2a Order of H. Church Ford, USDC J. dated Jung 2, - 7958, fromuchich appeal was taken to United States Court of Appeals for the Sixth Circuit of all of-such argument the Court, having catefully considered said Plan and all objections thereto and having carefully considered said argument and all _ briefs heretofore filed herein and the advisory report of the Securities and Exchange Commission heretofore tiled herein, and being fully advised in the premises, is of the opinion: ; (a) that notice of this confirmation hearing has ° -been duly given as required by said order of thiis Court. ‘ayter ‘ed on May 13, 1958, and in compliance with See- ‘tion 179 of ‘the Bankruptey Act, (b) that The Columbia Gas System, Ine., has duly accepted Said Plan in a writing filéd herein, | (¢) that the provisions of Article vil I, Section 199, and Article X of ChaptemxX of the Bankruptes Act have been complied with, (ed) that said Plan is fair and equitable and feas- ible, ae. . ' (e) that the proposal of said Plan and its accept ance are in good faith and have not been made or pye- -eured by means or promises forbidden by the Bank- ruptey Act, | (f) that all paymetits made or to be made by the btors, the Reorganized Company, or any ether per- son or corporation, for services and for costs Mad ex-. penses in or in connection with these proceedings or ~— with said Plan and incident to the re ur gauiZdtionus, have been or will be disclosed to the Judge and will be subject4o.4ye approval of the Judge, and ¢: ¢ 3a . Order of H. Church Ford, l | [. .Bankruptey Act and; finally, by corporate ‘reorganiza- 8a. . - Opinion ofg! nited States Court of Appeits ve the — Sirth Bireutt, dated February 14, 1957 | Inland Gas Corporation, 6 Cir, 187 ‘F. 2d 813; In re- Inland Gas Corporation. 6 Cir., 208 F. -2d 13; In re Ipland Gas Corporation, 6 Cir., 211-F. 20381, certiorari - denied Kern vy. Williamson, 348 U.S. 840, 75S. Ct. 45, 99 L.-Ed. 662 ;In re Inland Gas Gor poration, 6 Cir. i F. 2d 207. Their present. problegis will, likewise, herein detailed. Die to the insolvency of the. Debi : solution of their difficulties was first sought on Decem- ber 2, 1930 by an equity reeivership, followed since October 15, 1935 by’ proceedings under § 77B of the tion-proceedings under’ Chapter X of the Bankruptcy Act. After much effort to formulate a Plan under the *. provisions, of that chapter, a Plan entitled ‘‘Amended Plan of Reorganization,’ dated February 12, 1953, was _ found to be fair, equitable and feasible, by the- District Court; in an order entered on that date, but by reason of a chaHenge thereto, by appeal to this Court and by certyrari to the Supreme Court circumstances. had,so° changed in resvect to the dominant Inlind Estate that the ‘Plan eould no longer be used w ‘ithout modifications. ‘i The important new developments consisted of a sub- stantial increase in the value of the Inland Estate since - _. the earlier approval of the Plan and the receipt by the Trustees of an offer to pay $6,750,000. 00: eash for the fixed assets of Inland and certain subsidiaries of Ameri i- can by.the Texas Gas Transmission, Corporation. The Court, thereupon, directed the Trustees to amend the’ reorganization Plan of 1953 to the extent necessary to “embody therein the, Texas. offer and to make appre-: pridte provision for a public auction of:the fixed assets. of the « orporations withthe amount of the offer to con- + a he : ge Oe 9a’ Opinion g4 United States Court of dae for the. Sip th Cireutt, dated February 14, 1957 stitute a fai Ipset prige.’ The Amended Plan of 1 reor- ganization was: thereatfeyso modified. “It was found wortliy of consideratieipand referred to the SEC. The upset’ price was in exces of the adjusted basis for Fed- i eral income tax purposes of the assets which were to be sold, so, the appellant, Trustee of ‘Inland, applied to the Commissioner of Internal Revenue for a ruling as to whether or not the proposed. sale would result in‘any Federal income tax liability to Inland or its Trustee. 7 . It was the Trustee’s position that the Texas Plan would | fall within reach of § 337 of the Internal Revenue Code of 1954. 26 US.C.A. 9 337, and that no gain or loss should under its provisions be recognized. A later and better bid was thereafter received from the Tennessee Gas Transmission C ompany which offered $8, 000,000.00 in cash for the same properties which it confirmed by'a deposit of $400,000.00. In-view of this offer, the Court, on July 14, 1955, directed the Trustees to prepare anew | ‘Plan of reorganization, which is the ‘Plan here in eon- troversy. It, like the Texas Plan, provides for the sale-_ of the fixed assets of, Inland, and the subsidiaries of. a ti at publie, auction, to the highest bidder, with, the ly 0 sale and the proceeds of other assets of the Debtor Ind for. the complete dissolution of the debtor | corporations. The Texas. Plan filed by the trustees, having Jreon found worthy of consid leration, was s) ub- it ritted- to the SEC, which recommended disapproval, ‘Thereafter the Tex as Phar was sitpe ‘yseded by the Ten- nessce Plan, which was submitted to the SEC and: as , lernnessee offer of: ‘$8,000,000.00 as. a fair upset. - pre ej It provides for the distribution of the net pro- * \ ae y “10a Opinion of United States. Court of Appeals for the Sicth Circuit, dated February 14, 1957 subsequently amended, was found by the SEC to be fair | ‘and equitable and feasible. The Texas Plar having provided-fdx a complete liquidation for the Debterg, the Commissioner of In- . ternal Revenue, through the Director of Tax Rulings Division, issued a zulmg that .the proposed sale under ~. the Texas Plan would rgsult in the recognition gain,. for purposes of Federal incometaxes. After the substi-, tutten of the Tennessee offer for that of Texas, the ation of it ~xuling but, on December 29, 1955, the Com- . missioner Freya >to original decision. It is esti- mated that if that sion is correct, the Federal tay involved ivould be approximately. $1,192, 000. 00. In ob- _ jecting to the Plaw before it wasapproved as fair, équi- - . table and feasible, and during the voting on the Plan by the creditors ‘and when confirmation was under éon- sideration, appellant Paul E. Kern relied principally ag gfounds for hik objections, upon these rulings and as -an assumed result of a letter sent by him to all Ken- tueky creditors, the Plan was not approved by them. ': Kern-was not an originat investor in the Kentucky bonds.and debentures .but began buying Kentucky se- ‘eurities on May 5, 1941 and after the large élaims of the Columbia Gas.& Electric Corporation were beéause of ~ its inequitable condn¢t subordinated to the-claims of all © other. creditors of the Debtors and, because of the suc- ‘cessful operations of the Frustee, continued to purchase Kentticky securities throughout the vears until he had ad ° _Drustees pplied to the Commissioner, fora reconsider- =~ acquired $303,300.00. face value of first mortgage bonds =a ‘and a substantial - number of Kentucky debentures Ma 4 Ooiiion of United States Court of Appeala forthe ~ Sixth Circuit, dated February 14, 1957 through’ 1952, 1953 and 1954 until he owns 34% of the . outstanding issue of bonds and some debentures. If the submifted Plan of reorganization is confirmed,. it is clear that Kern wil redp a very substantial profit upon his purchases, even if the tax claim of the Government is sustained, and a much greater pr oft if the tax claim - is held invalid. After a hearing, the Court entered its order of - March 14,1956; It considered the petitions of the Trus- tees of American,. Inland and Kentucky Fuel that the . Plan las® submitted be confirmed, heard: counsel for Kerr: and certain stoekholders of American in opposi- tion to confir thation, and counsel for SEC, to the effect that further consideration of the Plan should await a determination, of the Federal Income Tax question. _' Counsel appeared specially for the Attorney, General of _ the United States, the Secretary of the Treasury, the Commissioner of Internal ‘Revenue ‘and the’ District Director of Internal Revenue for Kentucky and moved to dismiss the petition of the Inland Trustee for want of ‘i jurisdiction. The Court was of the opinion ‘that the ° petition was in effect an application for a rag Ne judgment and that under the provisions of the Federal | - Dee ‘laratory Judgment Act, 28 U.S.C.A. $$ 2201, 2202, it was without jurisdiction to entertain it. - Whereupon, . it ordered that the petition of the Trustee he dismissed. It also held that the public holders of bonds and deben- tures of Kentucky Fue], being unsecured creditors, + avere not entitled to post-bankruptey interest on their - claims and, that the Platis erroneous in allowing such interest, and becaitse the Court lacks jurisdiction and aoe . 12a Opinion of: United-States Court of Aesnide for the - Sixth Cireutt, dated February 14, 1957 . ~ cannot pass upon the tax question, the Play should not be confirmed. The Court also considered the proposed Kern Plan and, being of the opinion that the Plan was _» not’ worthy of consideration for the reason-that it )pro- posed to encumber the reorganized corporation with a heavy debt, .it held the Kern Plan not worthy of con- sideration. We are‘now advised by the Trustees of the Debtors that the Tennessee offer of $8,000,000.00 for the fixed _assets'of Inland and of American’s subsidiaries has been withdrawn, under a reservation contained in its offer, and@faat the deposit of Tennessee, as evidence of its good Sth, has now been released. In order that the record may be complete as of the date of this opinion. we have asked the Trustees to secure signed stipulations, - to supplement the record in this respect.. We assume that this will be done. We also assume that if a new Plan is submitted and approved which wil} contain either a provision ‘for the sale of the assets of the Debtors or an internal Plan that will not provide for such sale, the offers of both the Texas and the Tennessee Companies will furnish some guidarice to the Court as to their value, whether represented by distribution of eash or stock.in a new corporation. : _ It is apparent that the more important issues, here involved, relate to the validity of ‘he Comnfissioner’s -ruling on the taxability of proceeds of sale, if sale is made, and the provision in the Plan for post-bankrupt interest to the holders: of Kentucky bonds and deben- tures. Minor issues will also be-dealt with. ey 4" 13a ‘Dplaion of United States Court mainte for the Sisth Circuit, Uated February 14, 1957 The. TaX Question. The Trustees contend, upon * advice of counsel, that-the Commissioner's ruling is arbitrary and capricious and in disregard of the plain » language of § 337 of the Luternal Revenue Code of 1954. That Section insofar as pertinent provides that if a corporation adopts a Pian of complete tiquidation on or after June 22, 1954 and within the twelve months period beginning on the date of the adoption of such Plan, all of the assets of the corporation are distribated in com- plete liquidation, less assets retained to meet a aims, “then no gain Or Toss shall be recognized to such corpora- tion from the sale or exchange by it of property within ‘. sneh twelve months: period. .Their contention is that this language is clear and unambiguous, making inter- - pretation unnecessary; that liquidation is consistent with a reorganization proceeding under Chapter X and that the Plan meets every requirement of the Section involved? if.it be given its plain meaning. The Com- missioner ‘'s contention that the word “distributed” means a distribution of assets to stockholders m can- a cellation and redemption of ‘stock is a rewriting of the statute ‘by inserting in it the words *‘to stockholders” after the word “distributed,” so as to make the phrase . read “distributed to stockholders in complete liquida- — tion.’ This, the Trustees say, he is not empowered to . do. Moreover, "y wou Id be highly inequitable to recog- , nize gain-by an Tusolfent corporation when all of its _tssets are distributed to its creditors and nothing to its stockholders. «Faced with the assertion of what they consider an illegal tax, they petitioned the Court for $ instructions as to it: illegality, and sought injune tive I4a Opinion of United States Court of Appeals for the. Si. rth Circuit, dated February 14, 19; 57 relief: againet the officials who’ would assess the taxand undertake to collect it. Moreover, they argue that the Bankruptey Court, in a Chapter X proceeding, has’ _exclusive jurisdiction to determine the validity of = bankruptcy taxes; that snch taxes are expenses of ad- * ministration and have so.been recognized. They see no practical objection to the District Court passing upon the tax question now rather than following a sale of as-" ‘sets; that the objgctions thereto are highly technical . and specious and should bow to the prac tical necessity of having the tax question put at rest, in order that an advantageous Plan of reorganization may be confirmed and the long drawn out proceedings breught to-an erid. They. oom the opportunity that has been presented for a successful and prompt ‘Yeorganization by . the $8,000,000.00 offer received by. Tennessee. They say | that, if withdrawn, the er€d litors ‘will suffer and they will have no recourse against the Commissionér or any- one else (This argument, of course, loses effectiveness by the withdrawal of the Tennessee. offer and the re- / lease of its deposit. = | aR ‘ The Gov ernment, appearing specially, makes no re- sponse.to the contention of the Trustees that § 337.must’ _ be literally applied d and that there i is no room for inter-. ' pretation of its terms. It bases ifs ‘objections to the relief prayed for in the sever fl petitions of tlie T+ Ustees upon jurisdictional and. procedural. grounds. T here is, | it says, no actual eontrover sv in the constitutional sense. There has been no sale of assets, no assessment of taxes. , ond no effort to Gollect taxes. No-possible taxable event hid occurred at the time of the filing of the petitions. la Opinton of U nited Stutes Court of Appeals for the Sixth Circuit, dated Februarg 14, 1957 or:since, and might never occur: The petitioners seek adeclayatory judgment, éven if what they-ask for is not’ so. denominated It points out that the Declaratory | uidgment Aét, § 2201 Tit. 28 U.S.C., is limited to actual controversies and contains an express exception that it shall not apply ‘‘with respect to Federal taxes.’’ In ‘addition to the prayer for what in reality is a declara- * tory judgment, the. Trustees also sought injunctive relief against the assértion and enforcement of any tax claim in. connection with the possible sale of assets ‘under the Plan but such restraint is barred by § 7421 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 7421, which provides, with certain exceptions, that no suit for the purpose of restraining the assessment or collection of any tax shall be maintained, in any court: he exceptions refer only to instances-where proceed-— i ings have been instituted before the -Tax Court. [1, 2] The rukngs of the Commissioner are not lightly to be dismissed as arbitrary: or eapricious, and - are based upon the Income Tax Regulations under the * 1954 Code, 26 C PR. 91 337-2(b).- The problem with Which § 337 was ‘concerned arose” out of the dexjsio im Commissioner vy. Court Holding Co., 324 U.S. 331, 63 8.C't. 707, 89 L. Ed. 981, and United States v..Cumber- ~ land Publie Service Co., 338 U.S. 451, 70 S.Ct. 280, 94°” L.Ed. 251, and the Section was enacted to avoid nice distinctions between whether property” was sold. by a corporation or in reality by its: shareholders. It was — thought that technical ‘distinctions were undesirable and § 387 was designed to eliminate them. While the Section speaks in terms of distributjon, it is silent as — Po ; ¢ 4 l6a | ¢ Opinion of United States Court of Appeals for the: Sicth Circuit, dated February 14, 1957 to whom the assets are to be distributed. It may re--. quire clarification but that must await ti& happening of the taxable event. Meanwhile, the hazard of sé ‘sub- stantial a tax liability is too great to make the present Plan equitablé and featble. The Congress has provided ample machinery for the settlement of income tax con- troversies and ‘the provisions in respect t¢ thoy are exclusive, subject to exceptions by circumstances ‘hot * herein derfonstrated, for the withdrawal of the Tennes- see offer destroys the argument that the Security Hold- ers would suffer irreparable injury if the properties of the Debtors*were not disposed of by sale. We do not | reach the meritorious question raised by the Trustees with respect to the meaning of § 337 because the Court ” is barred from vonsidering it by the limitation in the Declaratory Judgment Act and the prohibition con tained in § 7421. On either, or both, of these grounds. we sustain the District Court4n denying the petition of _ the Trustees for approval of their last submitted Plan of reorganization. / ‘The Question of: Post-Bankruptcy Interest. By our | previous decisions, claims of Columbia Gas & Electric Corporation were subordinated to the claims of other creditors rather than rejected, In re Ameriean Fuel & Power Co., 6 Cir., 151 F. 2d 470, 479. Our specific lan- guage was: ‘‘Claim of Columbia Gas & Electri¢ Cor ho- ration, based upon its ownership of Mortgage Bonds. issued by Inland, is not tq be rejected but is to be.suber- . dinated to the claims of other creditors.”" In 187 F.2d 813, 819, we said: ‘*The order will be amended by tlifer- tion to subordinate the claims of Columbia to the nublic 17a ~ Opinion of Cuited States Court of Appeals for the . Sirth Circuit, dated February 14, 1957 holders of Kentucky and Amer an_ Fuel obligations secured by pledges of Inland sfock th recognition of - their creditors status. Columbid claims against Ameri- gan Fuel and Kentucky Fuel ill remain subordinated _ to the claims of their other eyditors."" We adhered to those rulings. 217 F.2d 207/ Following them, Columbia no longer! took act in the reorganization pro- ceedings. No specific statement was made in any of the prior determinations respecting interest on the Ken- tueky bonds and debentures because at thg.séene it was not apparent that the surplus assets of Inland would be sufficient_to“pay the principal of such obligations. It tiow appears that ‘through continued suecessful oper- . ation of the Trustees, such Bonds and Debentures can ~ be paid in full with a surplus remaining after such pay- ment; and: Columbia has returned to the ease with a challenge to the provisions of the present Plan which requ? that sui stirplus be applied to liquidate the interest obligatjons of the Debtors on such securities. It eomtends thit since its claims were not rejected, it is ‘ entitled to payment thereon, before payment of post- hankruptey ‘y interest, stuee the Kentue ky Bonds and Debentures were unseqgred bf pledges of the Luland stock held by Kentucky. With{this position the. District Court was in agreement. [3] The general rule in baykrupsey and in equity p recéiverships tias been that interest on the Debtors’ obli- gations ceases té accrue at the beginning of proceedings. This is based upon renming a interest ix a penalty’ for delay in payment, and where the power of the debtor te pay his contractual obligations is suspended by law, a © ; . ‘ * | L_- * , Se 3 Opinion of U nited States ( ‘our of Appeals for the Sirth Circyit, dated Peerwary 14, 1957 interest during suspension may not be ace rued, if the courts are properly to preserve and protect the estate - Fag the benefit of all interests: involv ed, There are,. uwever, well recognized exceptions to this géneral rule. If the alleged bankrupt proves solvent, post- ‘hankruptey interest is pail before any surplus reverts. ‘to the Debtor. ° (2) If securities held by a creditor as collateral produce interest or: dividends. during bank- ruptey such amounts are applied to post-bankruptey interest. (3) If the value of the security is more that . sufficient to pay both principal and iyterest theresn, payment of post-bankruptcy interest inn ‘ was for a period a difference of opinion as to allowanice ‘of interest on tax claims: They were considered in some jurisdictions as claims’ of -higher Uignity than » general Claims. This difference has now ye resolved. Sy U. 328, 6% bas the City. of New York v, Sapery 5; S. Ct. 004, 93.L: Ed. PLO, and they arg now ra as debts on a par with other debts ofthe baukrupt. [4] Whether interest shotht-be allowed upon claims against the bankrupt Debtors is, we think, no-longes to > be determined by thejr relative. dignity, in the light of .* the Saper case. Otir decision must be reacher!. balancing the equities as between Catumbe ami th thie Kentucky creditors who have waited so.long for the payment of their claims, ke manifests” SEM. Jahee Black, for the majority. in Vanston gre holders: Protective Committee Vv. Green, B29. ne GTS. Ct. 237, 241, 91 L. Ed. 162, “that the tone coe at eae ‘h decision on allowatice of interest in: banker wt “7? owed to thie: dite of payment of the claim secured thereby. There” 19a ms :¢ er Gaieien of U itited States Court of Appeals Pt the Sith Circuit, dated February 14, 1957. 543, 83 L. Ed. 669, that,.as said in Sampsell, 313-U. S. at page 219, 61S. Ct. at page’ 907, ‘The power of the binliiene y court to subordinate claims or to adjudicate. equities &. arising out -of. the relationship between the several epeditors ix complete,” and the further observation that “To br ing. himself outside of that rule an unsecured — creditor carries a burden. of showing by clear and eon- vincing evidence that its application to his case so a to deny hiny priprity. would work an injustice."” That | such burden is fully borne here and by our earlier deeci- sions amply demonstrated.* Rater 7 We said in O11 F. 2d'381, 384: oT would be not only an anomaly but would fly » the face of the rationale of atl prior adjudications to permit:Columbia, directly or ‘indirectly, to reeeive any portion of Inland‘s surplus while the secured creditors .of Kentucky were still. to large extent, unpaid.”’ This‘coneept pervades all pre- Views: ad jpdic ations and includes, by. necessary infer- ence, the entire debt owing to. Kentucky Bond and De- henture Holders up to the time that they are paid, either. in cash or by stock in.a newly organized corporation, ~ 20a Opinion of United. States Court of Appeale for the Sirth Circuit, dated February 14, 1957 _ for Kentucky as well. as Inland and American was the beneficiary of Columbia’s subrogation’ resulting from - its highly inequitable conduct by which all three of these integrated Debtors were placed under the jurisdiction of the Bankruptcy Court, With such result, the, SEC agrees, Of the remaining appeals and the petivion’ of the Allen Committee, little discussion need be added i in the present posture of this proceeding. The SEC complains of the decision of the District Judge to the effect tha: the Kern Plan for an internal reorganization was not worthy of consideration and, therefore, should not be submitted to the Commission. The Court having direct- _ed the Trustees to frame and submit a new Plargof reor- ° ganization, which may or may ‘hot contain a provision | for sale of the properties, or which may or may not sub- mit some form of internal reorganization, there will be | time and opportunity to consider such new approach to the problems here involved. We may not speculate at this time jn respect to the provisions of the new ap- . proach omvhether the Court will find it worthy of con- sideration by the SEC. Until such Plan is submitted. we make no decision upon the grievance of the SEC. _ The Allen Committee has suggested that there are hanged circumstances which warrant, the reopening by -/this Court of its prior decisions holding the publie cred- / itors of Kentucky entitled to be treated as creditors of Inland Gas before the claims of: Columbia Gas: or the stockholders of Inland may be:recognized. ‘The holders of Kentucky bonds ands debentures ask us to - Giamales the. petition of the Allen Committee on the 2la a Opinion of United States Court iy Appeals forthe Sirth Circuit, dated February 14,1957 | - ground that it runs counter to our previous determina- tidns, presents.no changed cireumstanees | ‘alling for re- treat fherefrom, and nroves its dismissal, as well as that of Spilman, representing Stockholders of Americitn, on the ground that both are frivolous and avithotit merit. U ndoubtedly; the petitions, if sustained, would mean a ty oppning of determinations prey iously, and repeated- - lye thade.” We decline to do so. The motion to dismigs will he sustained and the petition of the Allen Commit- ~ tee and Edward D. Spilman will be dismissed. The seven appeals from the order of the. Court, en- tered Mareh 14, 1956, so variously approve and disap- _ prove of that order and respond variously to eonteritions gf appellants and appellees that it.would be diffieult and confusing to*frame a specifie mandate in each ease to implement. our holdings herein. The writer thinks it ‘ . sifficient, therefore, to direct the dismissal of the peti- tions of the Allen ¢ ‘onumittee and Edward D. Spilman incase No. 12865, and to direct that a single mandate be | entered in each of the appeals. amending the order of the District Court in the single respect that it holds post-bankruptey interest may not he recovered by the ‘holders of Kentucky bonds and debentures and, as so amended, affirmikg the order, without ‘ruling on the merits of the SE contention that the Kern Plan be submitted to it fotconsideration.. ‘With, this my col- leagues do not whollkagrée. ey [5] Since it now.appears from the concurring opin- ions of my brothers that w hile they concur in all re- spects with the above opifiion, | save only in the view that post-bankmiptey interest shall he allowed on the Ken-- . . 4 ira q / ° / F é % . 4 . . 4 - . ° . Se Opinion of U nited States Court a sapaie for bho. ' —Sirth Circuit\ dated February 14, 1957 tucky bonds and debentures, it follows that the order of the district judge is not to be amended but'that in all’ -respects it must be and it is hereby affirmed. pe | Wherefore, the petiti¢ 1 of the- Allen Committee awd Edward D. Spilman is hereby dismissed: and the be of the District J udge is. her ey. Affirmed. : MILLER, Circuit Judge. , , I concur with the views and ruling of the foregoing _ opinion except insofar as it expressés the, view that - “post- bankruptcy interest should be-allowed to the pub- lit holders of bonds and debentures of Kentucky. In , that. respect I agree with the ruling of the. District “J udge, who was of the view that the proposed plan of - reorg sanization should not be approved because, in ad- dition to the uncertainties resulting from the undet amined tax question, it erroneously prov ided for hit pay : ‘ment of post-bankruptcy interest. e + dividends.duxing bankruptey, such amgunts are applied ta post- bankruptcy iriterestion the secured debt. Amer. ,. 5 ican [ron & Steel Mfg: Co. v: Seaboard Air Line Ry,, 233 U.S. 261,267, 3P8:Ct. 502, 58 L. Bd, 949; City of ‘New York v. Saper, supra, 336 US. 328"at page.330, 69. - ‘S.Ct. 554, at page’ SHS, Note 7. This Court and some _ other courts have’ Fécogniged a third exception, namely,. - - where the value of ‘the security is more than sufficient to pay the principle (sic) of the debt secured, ‘the excess | should be applied to post-bankiuptey -interest on the obligation so securéd. In re Macomb Trailer Coach, 6 ~ Cir., 200 F240 611,: 613, certiorari ‘denied McInnis v. | Weeks, 345 U.S. 958, 73 S.Ct. 940, 97 L. Ed. 1378, with eases cited therein. | : Appellants aielant to avoid the effect of the inutie disallowing post- -baykruptey interest -on’ unsecured - claims by taking the p tion (1) {hat the bonds of, Ken- ky are sec uréd claims, 1R(2) Af thes are unsedured - claims, the claims‘of Columbirs ould be rejected rather than stbordinated, which w ould eliminate any contest . -hetween Columbia and the public holders of bonds and Aebentures of Kentucky. We have rejected these con- - tentions in prior appeals. The Court in the present case ‘to. For the purposes of our present case we accord- ingly must consider Columbia’s claim as an existing valid claim, but subordinated i in rank to the payment of. other eae a. i eg ae “ a. mi is unanimous in its view that those rulings be adhered .. . * ,2ta " é LAs . YS Opinion of “a States Court af pee als for the — Sixth Circuit, dated. February 14, 1957 Such subordination does not in any way chen the. - rule that post-bankruptcy interest is not payable onan | unsecured claim as long as other claims which have been “allowed remain ‘unsatisfied. Under the ruling in Samp- ‘sell v. Imperial Paper.& Color Corp., 313 U.S. 215, 61 » .8.Ct. 904, 85 L.Ed. 1293 and Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281, the Court had authority - . ‘to disallow the claint of Columbia. Having declined to’ = g--—-- = do so, Columbia is entitled te stand npon its rights as a ° ereditor, even. though a subordinated one. When. all other creditors are paid in the manner which the bank- ruptey law recognizes as payment in full, the subordi- nation has been carried out and the ereditor is entitled, as. a ereditor, to its rights in the remaining assets. _ Jamison v,’Federal Deposit Insurance Corp., 5 Cir., 149 F.2d 199, 200. A denial of this right is in ‘substance Me ‘rejection or disallowance of the claim, which this : Court has heretofore declined to do. : Appellants in effect urge upon us a fourth exe ep- tien to the general rule,-namely, that post-bankruptey ’ interest should be paid.to an unsecured claim of a higher ° avank before any payment is made to a claim of a lower ~ vank., They contend that it is immaterial whether th> differ once in rank arises out of the contractual terms of the creditors’ claims or because one creditor. has’ been subordinated to other creditors because of the inequit- able and uneonscionable conduct of the subordinated creditor, as in the present ease: ‘I do not believe. the authorities support that con-. * _ tention.. On the contrary, such a contention appears “to me to be expressly rejected. by the Supreme Crt 2 5a “Opinion of U ited States Court of Appeals for the _ Sitth Circuit, dated Volraary. 14, 1957 3 in € ‘ity of. New York 1 v. Saper, supra, 336 U.S, 328, 69 S.Ct. 554, 93 L.Ed. 70. . The tax claim in that case on “which post- bankruptcy ititerest was denied was ‘of a higher ranking than claims of general creditors. Sec- - «tion 64, sub. a(4), Bankruptey Act, Sect. 104, sub. a(4), Title 11; U.S.C.A. The Court said 336.U.S. at page 337, 69 S.Ct. at page 559: ‘The Lourt of Appeals concluded ‘. that by the 1926. Amendment and the Chandler Act, Congress assimilated taxes to other debts. for all pur- poses, including denial of post-bankruptcy ‘interest. - We think this‘is a sound and logical interpretation of ' _ the zat after. those amendments to $$ 64, sub. a, and 57, ~ sub.n [11 U.S,C.A. § 93, sub. n].’’ The same rule has been held applicable in a reorganization proceeding ‘under, Chapter X» United States v. Edens, 4 Cir., 189 F.2d 876, affirmed 342 U.S. 912, 72 9.Ct.-357, 96 L.Ed. 682, See also: United States v, General Engineering & Mfg. Co., 8 Cir., 188 F.2d 80, affirmed 342° US. 9P, © 22 S.Ct. 358, 96 LiEd. 682;°Pavone Textile Corp. v. _ Btoom, 302.N.Y. 206, 97 N.E.2d 755, affirmed sub nom., United States v. Bloom, 342 U.S. 912, 72.8.Ct. 357, 96 ~ LEA. 682 ; Commonwealth of Massachusetts v. Thomp- son, 1 Cir., 190 F.2d 10, certiorari denied 342 U.S. 918, 72 S.Ct. 364, 96°L.Ed. 686; Sword Line v.. Industrial Commissioner, 2 Cir., 212 F.2d 865, certiorari denied 348 U.S, 830, 75. S.C t. o3, 99 L. Ed. -654; National Foundry Co. of New York. v. Director of. Internal \ Revenue, 2 Cir., 229 F.2d 149. The exception was not ‘recognized by. tis Court in New York Trust Co. v. Detroit, T. & Ll. Ry., 6 Cir., 251 F. 514. “To the same effect is Jamison v. Federal’ Deposit Insurance Corp., } 26a é. ‘ Opinion of United States Court of Appeals for the » Sizth Circutt, dated yeoruacy 14, 1957 ‘supray 5 Cir.Al49 F.2d 199; U nited, States v. Paddock, ® Cir., 187 F.2d 271, 276; Applic ‘ation of Progress Shive Co., D.C.E.D.N.Y., 107 F.Supp. 116; Squire vy. ‘Americ an Express Co,, 131 Ohio St. 2: 260.02 2 N.E2d 766. “ Appellants rely upon Vanston Bondholders Pro- o tective Committee v. Green, supra, 329 U.S. 158, iT S.Ct. 237, 240, 91 L.Ed. 162. Although the Court ex- presseck the view in the opinion in that case that th. o- should be a balancing of equities between creditors, it also restated the general r& that in hankrnpte; yand in equity receivership ‘interest on the debtors’ ete.” tions ceases to accrue at the beginning of proceeding.” The aetual ruling in the case was a disallowance pf in- terest On interest on secured claims. The Court pointed out, 329 U.S. at page 166. 67 S.Ct. at page 241, thot where the failure to pay interest when due is the result of an order of the bankruptey court. entered for the joint benetit of debtor, creditors ao the publie, it wa- hot consistent with equitable, principles to enrich the mortgage bondholders at the expense of subordinat creaitors, even though their mortgage coutract called ' for the paymerg of interest on interest. We have a . similar situation in ‘the present case. ee ‘In re Deep Rock Oil Corp... .10 Cir. 113 P2240 wertiorari denied Standard Gas & Electric’ Co. v. Tay ler. 311 U.S. 699, 61 S.Ct. 158, 85 1, Jed. 453, Seende te onene support te appellants’ contention, However, the rv ing is based largely upon three eases, ond af whieh o> Anieri¢an Iron & Steel Mfg. Co. v. S« dthourd Ait Li Ry., supra, 233 US, 261, 34 S.Ct. 502, 58 LB. oie. Opinion of United States Court of Appeals for the Sizth Circuit, dated February 14, 1957 — ; which involved ‘secured claims ratber than unsecured + claims, and two cases involving. interest on tax claims which were decided contrary to and prior te the ruling” in City of New York v. Saper, supra. These cases fur? nish no real support for the ruling. ‘1 am of the view that the publie holders of beets bi ‘and debdntures of Kentucky are not entitled to the payment of post-bankruptey interest. [ concur in the views of Judge. Martin, hereinafter expressed, with respect to the tax phase of the controversy. ~MARTIN, Cireuit Judge. ; : Yn my view, the judgment of the district court should be affi lin entirety. It ix elementary that, _ exeept in certain situations not applicable here, the courts of the United States have jurisdiction only where granted, beth by the Constitution of the United’ States and by an Act of Congress. [t is eqaa'ly basic that the Congress has power to limit the jurisdiatjon of the inferior courts and has often done so. The fe- quirement of a minimum jurisdictional amount in cer- ‘tain cages ixyan example of ste rh ( ongressional limits- tion, . ‘The Declaratory sudgnate Act, section KOT of Title 28, U.S.C. provides: “In a case of actual eon- troversy within Nx jufisdic tion, ercept with respect to - Kederal tares, any court of the Uhited States * * * ipon the filing of an appropriate pleading, may ce- clare the rights and other legal relations of any in- terested party seeking such declaration, whether or net further relief is or could be sought.” [ Emphasi _iny interest thereon w hich would‘hay e been recoverable at that date * */*.: | es aS SORE Be Secfion 102, ti U. S. C. $502: 7 he provisions of. chapters I to VII; ‘inclusive, ‘of this Act shall, insofar -as they are not inconsistent or in-conflict with the pro-- Visions of this chapter, apply in proceedings under this chapter : Provided, however, That section 23, subdivi- _sions h and n of section 57; section 64, and subdivision f of section 70, shall not apply in such proce eedings unless anor der shall be_ente1 ‘ed directing that bankr uptey be 2b Sehr | Statutes . - proceeded with pursuant to the provisions of chapters 7 ‘Ito VII, inclusive ** * * | . ~ > Section 197, 11 U.S. C. 5 597: For the purposes of “ts the plan and its acceptance, the judge shall fix the divi- _ sion of créditors and stockholders into ‘classes ‘accord- ing to the nature of their respective claims and stock. For the purposes of such classification, the judge shall, if necessary, upon the application of the trustee, the 3 ‘debtor, any creditor, or an indenture trustee, fix a hear- ° ing upon notice to the holders of secured claims, the. ’ debtor, the trustee, and such other persons as the jridge may ‘designate, to determine summarily the value of the security and glassify as unsecured the ‘amount in excess of such val : . Section 216, 11 U. S.C .§ 616: A plan of reorganiza- tion under this: chapter— e 1) shall include in respect to ereditors generally or _ some class of them sécured or unsecured, and may in- clude in respect to stockholders generally or some class of them, provisions altering or modifying their rights. - either through the issuance of new seourities of any character, or otherwise ; ; -(2) may deal, with all or any - part of the property of the debtor; =" (6) shall specify what claims, if any, are to be paid . in cash i infull;*** Sectidn 2 221, an U.S, C. 4 621: The pe shall con- firm a plan if satisfied that— . = = a * a7 - (2) The plan is fair*and equitable, and feasible ;*** @ «'o-do Mw: c ; 1 c r . . a JAM &. BROWNS. ae ‘166 | a ot ae a .. by THE ‘Supreme Court uf the aluited States October Ferm, | 1958 ———— PAUL E. KERN, ox , Petitionér, —_vV— 7 THE COLUMBLA GAS SYSTEM, INC: er aL, MAR 13 196"; ww * ) a —- wae a EGE Respondents. Na 5 ne : 8 PETITION-FOR A WRIT OF CERTIORARI TO-THE UNITED STATES COURT OF APPEALS FOR THE ee ra ‘SIXTH CIRCUIT — — J ‘ - * : ‘an | | , “ft Pad ZOLOTAR, 521 Fifth Avenue, _ New York 17, N. , Rs V Leo T. Woxrérd, OL South Second Street, Louisville 2, Ky., “Caunsel for Petitioner. March, 1959, “Although Assets-Are More Than Sufficient ee _ Pay Principal.to All Ranks of Creditors, the Surplus it Deniedsto Public Priority Creditors and Awarded Exclusively to Subordinated Parent as Post- Petition Interest xen Heaceges = & I ovmshated 22. eerer HEM eKS Capen’ fede naenedens +24 ‘Appenpix ,A--Statutory Provisions biadantyevpaiens 1b Appixprk -B—Opinions and Orders of, Court of P a ak INDEX - — . | yar = PAGE Opinions Below. fee ns eae rere rere wedes a y. , jurisdiction ig ics aaa’ JA, Pre ery wésosets 4 Qo Questions Presented scusepwedectssatiesssecaae dee 2 ? Statutes Involved ..... rape , paeees betednevens ata Statement °........... - icemennkewiaee seen oe ka Reasons for Allowance of Writ . ee Cass seau as ee The Conflict Seteintss ee ie Automatic Application: of Straight. Bankruptcy a Interest Rules is Detrimental to Public . In- me vestors in. Réorganizations iateckehssamnas . 12 '. The Saper Decisiofi has Produced Doubts as to. ie the Protection of Public Investors Intended by \ This-Caurt’ s Absolute Priority and Subordina- ; tion Decisions Ee ene ae eee geceiaiweadics 15 Confusion in Lower Courts Since Saper cae ae 6: Appeals Pe pee re kts 7b. - Opinion Dated February 14, 1957 . 7b Opinion Dated soapaiies a6, 1960. 28b ean eey rr tne rr ee oe ~- a a: ii | 3 Citations ae, | : } PAGE a ea Seay art . Amerigan Fuel & Power Co 1 Ine 122 F. 2d ap. Rare ee nr Sere ey ee “4 _ American Iron & Steel 1 Mfg. Co. v. Seaboard ‘Air . Line Railway, 233 eS perry: Pr 16,23 . enchae v. Leay avenworth pee Bank, 192 F. 2d 10 (9th Cir.). ¢ OPPO Cee eee ere See Tere eases 19, 20 * Case v. Los Angeles Lumbef Products Co., 308 . .° a Ne rerr erry oor rer ee “9 " City Bank Farmers Trust Co. v. Irving Trust Pa m~ ‘ ere a ere eee 7 +13 City. of New York v. Saper, 336 ‘U. S. $28 2.3... 6, 9, 11, ; | . 17, 18,19 Cube Arts, 213 U.S. 298 .eeceecececeel ph aia 15 _ Colambia Aircraft’Company v. United States, 163. 3 FE. Supp. 932 (S. D. N.Y.) ....... ake sence" 19 _ Columbia Gas & Electric Corp. v. United States, 151, — . * F. 2d 461 (6th Cir.) en See pers pe peer eye + ~ Columbia Gas & Electric Corp. v. United States, 153° Px £ «tk PR EOEETT Trrereeree .4 Commonwealth of Massachusetts v. Thompson, 490 _ F.2d 10 (1st Cir.), cert. denied 342° U. S. 918 . -9 Consolidated Rock Products Co. v.. DuBois, 312 eM RD cc casn spew se ceca cscesveccascegeess 9, 15, 16 Deep Rock Oil Corp., In re, 113 F. 2d 266 (10th | Cir. ), cert. denied ee te OF ba Cicascass v.92, 10,11 Eddy v. Prudence Bonds Corp 165 F. 2d 157 (2nd . 8 FOR A eee Ue Mine Were m ma rm a ys Newport Corp., In re; 123 #. Supp. 95 (8. D. Cal:), appeal dismissed, F: P. Newport Corp. v. Sampsell, 216 PF. 9a 366 (Oth Cir) ...d.ccceas: oe Group of Institutional Investors ¥. Chicago, Mil- waukee, St. Paul & Pacific R. Co., 318 U. = p23 . 16,18 , ; “ ‘ . ? i | PAGE - Inland Gas Corp. * ies re, 187 F. 2d 813 (6th Cir.) .. - 4,5 ,,/nland Gas Corp., In re, 211 F. 2d 381 (6th Cir. ) 5 * ‘Slates Standard Life Insurance Conv. U States, 247 F. 2d 777 (9th Cir. Dreisasacaccs os 20 Johnson v. Norris, 190 Fed. 459 (5th Cir. D cnnnas 15 & Marcalus Mfg. Co. v. sacecanee States, — Ct. .Cls. — (Jan. 14, FOE) A onc cncsncciced ince gue, 229 FP. 2d 149 (2nd Cir.) ...... alah ¢ cute 19 Palo Alto Mutual Savings & Loan heels nv. Wil- liants, "245° F. 2d 77. (9th Cir. ) eerreer cere PANY 20 ~R. P.-C. vy, Denver & Rio Grande W estern m. Co., er 3 TE ois as cs ceca ov nndcccss ts 16 Sampsell v. Impcrial Paper & Color Corp., ae ie | aeerer ett blunweeie eke sees ce dawun 20 Sexton y. Dreyfus, 219 U. S: arr rer rT ‘15, 22 - Societe Internationale, Ete. v. Rogers, 357 U. . > 197, 355 U. S. 812, te erererrer rire 23 - ’ State of New York v. Feinberg,_ 204 F. 2d 502 (2nd - GED GUsAbRANES OS peaaded od Cees 4s Cagece sss) ~18_ Sword Line v. Industrial Giesiahiakener of State of New York, 212 F. 2d 865 . (2nd Cir.) :...... we oe Taylor v. Standard Gas & Electric Co., 306 U. 8. in pe tae ide Cee y a hGaSesndsaweee awk --. 9,10, 17 ae National Bank v. Spr ague, 303 U. S. Pee aeh cuWsG eS enh aekedanes Seseeeesesees ol6, 19,22. Nee States v. Bloom, 342 U.S. 912 2. -.... ‘oa tes Ae ‘nited States v. Edens, 342 U.S. 912 ........ 6,9, 17, 18 Ned States v. General Engineering & Mfg. Co., MU Laduaita thts cee kuen Gaskets abae om 9 ' United\States v.°U. S. Smelting, Refining & Min- Oy Tg SIS. BBD os is eee ee cadens ; 6 7 Bondholders Protective Committee v. * Green, Oc cdcksckawanea saa 12, 16, 17, 19, 20 ? : iv. tere PAGE Bankruptcy Act, 524 +. 840, 11:U.8-C. sie et seq.: iv Section 63, 11 U. . §103 deiheae epee wnexes « —- . Sédtion 65, 11 U. S.C. § 105 tates: - Section 1,102, BER, A BOE oki geiccfececss. BE! Section 106(i), 11 U: S. C. §506(1) .......00..°5 13 “Section 173, 11 U.8. ©. §573 «....22 20.000. Pe Section 175,11 U. S.C. $575 ..... S.ikiwe cena a _ Section 179, 11 U. ee ee » 8 MisceLLANEOus: ae hao _ 6 CoLLier on renner Ed.) 2815-17 ..... 2B Cooke, BANKRUPT Laws ‘(4th Ed. 1799) See mae Inland Gas Corp., In re, Third. Advisory Report of .. Securities and Exchange Commission, CoRPORATE’ _-Reorcanization RE.ease No. 109, C.C.H. —_— : ~Buprcy Law Rep. f'59; OR oie ciess are eis 3 Minnesota & Ontario Paper:Co., In’ re, S. E.C. Cor- ‘ . PORATE REORGANIZATION: ‘Becd ssn No. 33 (1940), . A3 Corp. Reore. 361, A4 Corp. Reorc. 15. (1940) 18 Note, Allowance of Enterest. During "Reorganigh- tion ta Ai 50 Yale’ Law Journal 144 ES PA eres, rea res ren ee 13 » Note, ttavindb whiPont Petition. alee Dibring Reorganization Proceedings Under Chapter. X | . _ of the Bankrupt Act, 33 New York. Univ: L.- ‘Rev. 864 (1958) ..4.......0+.-. : LA 11,12. Note, Post: Bankruptcy Interest’ ig ‘Chapter x Re- | si semesinatit 67 Yale Law Journal 1131 (1958) . i: ee eo aa ° * ‘ . - o- oi é . r ‘ °° PS G ¢ . . 4, ° ‘ a . ° ot . ° a Supreme some uf ‘the Hnited State ‘| October Term; 1958 ‘ No. | 4). m4 Pauu E. Kern, 3 Petitioner, - atest van ‘Tue Cotumsra Gas System, Inc., et al., ‘ = e eanem a -0— - PETITION’ FOR A WRIT OF CERTIORARI TO THE ‘UNITED STATES. COURT: OF APPEALS FOR THE .: SIXTH CIRCUIT 7 ; a $e . ie : a Petitioner prays that a writ of certiorari issue to review the judgments of the United States Court. of Appeals for’ the Sixth Circuit, entered in the above- entitled case on January 15, 1959. . Opintens Below The initial opinfons.of the Court of Appeals are reported _ at 241 F.2d 374 and are printed in Appendix B, infra,p 7b-27b. On that occasion, a majority of the court ace (Simons, C.J., dissenting), ‘by affirming the order (without “opinion) of the District: Court for the Eastern District of Kentucky, remanded the case for the formulation of a new plan of reorganization. Petitions for-writs of certiorari. from. the no foal “judgments of the courts, below were. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA04386419_0799%3A2. Public record. Not legal advice.