# Reply Brief — Southern R. Co. v. Carnegie Steel Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386018_0409%3A6 ## Record - **Collection:** Supreme Court brief - **Document type:** Reply Brief - **Published:** January 1, 1900 - **Citation:** 176 U.S. 257 ## Text su reme Court of the United States Lach esoo= 8, S October Term, 1808. —No. 39. Certiorari to the Circuit Court of Appeals for the Fourth Circuit. THE SOUTHERN RAILWAY COMPANY, Appellant, against NOVEMBER, 1898. THE CARNEGIE STEEL COMPANY, LIMITED, Appellee. ’ Brief, For — in Reply to Appellant’s Supplemental Brief. P. C. KNOX, DAVID WILLCOX, Of Counsel for Appellee. Cc. G. Burgoyne, Walker and Centre Streets, N.Y. ° SUPREME COURT OF THE UNITED STATES, OCTOBER TERM, 1898. No. 39. CERTIORARL TO THE Cirevtrr Courr or APPEALS FOR THE FourrH Circuit. THE SOUTHERN Ratihway Company, Appellant, Sate ae AGAINST Nove mber, 1898. The CARNEGIE STEEL Company, LIMITED, Appellee. BRIEF, for Appellee in reply to Appellant's Supplemental Brief. As a matter of convenience it seems well to restate here the facts regarding the results of the operation of the property held by the receivers, and the diversion of the ineome from payment of current indebtedness of the company. 1. Receipts and expenditures upon the entire sys- tem. (7) Insolveney receivers from June 17, 1802, to July 33, 1893 (p. 422): Received from net earnings. .- 22-2 -_- $3,297,792 31 Expended as against the same : Car-trust payments ....--.- S209, 500 OO Sinking-fund payments... - 67,205 00 Juterest and Rentals ©... 2 _- 3,249,481 89 eet er tena 232,194 54 $1,390 32 Construction Rquipment ________ $3,839,711 55 Be oR 2 Statement. (5) Foreclosure receivers from August 1, 1893, to December 31, 1893 (p. 423) : eens teams Sed centiings. ......................- $1,127,861 09 Expended as against the same : Car-trust payments------ .--- 951,160 00 Sinking-fund payments..-.--- 37,790 00 Interest and Rentals... ..-.. 626,735 85 Construction and Equipment... 43,629 89 ——— $759,315 74 (c) Both receiverships combined, from June 16, 1892, to De- cember 31, 1893 : Tesetved trom mot earnings. ....... ....-220---4.--. 4,425,653 40 Expended as against the same : Car-trust payments... -.-- $260,660 00 Sinking-fund payments.__. --- 104,995 00 Interest and Rentals______---- 3,876,217 74 Construction and Equipment... 357,154 55 4,599, 027 29 2. Receipts and expenditures upon the Richmond and Danville road, taken alone and also with the ** fixed leases.” Net earnings of insolvency receivers, from June 16, 1892, to August 1, 1893 (p. 402).........-..----.-.. 346,163 10 The earnings during the foreclosure receivership from the Richmond and Danville road are not sepa- rately stated, but at the same rate the earnings of both receiverships solely from the Richmond and Dan- ville road were, approximately... .-.--.--.------- 550,000 00 Expended as against earnings upon the Richmond and Danville road proper (pp. 422, 423) : Construction— Insolvency receivers. ...---.--.- - sas T17 05 Foreclosure receivers. __-_ ~~~ -- 9,232 61 ae 28,949 66 Equipment—- Insolvency receivers_-...------- 74,733 28 Foreclosure receivers. ..-..----- 6,791 35 81,524 63 $ PROTA Se He PRT SES Te ae a . — . ret ARS EN ORE 3 Statement. Car-trust payments— Insolvency receivers ..--------- 209,500 00 Foreclosure receivers---~-------- 51,160 00 —-——_ 260,660 00 Total expended out of earnings upon the Rich- mond and Danville proper to increase the mortgage ———-—— GOCUTELY - - 2 we cnn nnn ns meee ep eceannccceneeee-- $371,134 29 In addition, the consolidated mortgage covered certain leaseholds, which are termed “ fixed leases” (p. 402); with two unimportant exceptions, these were included in the decree of foreclosure (pp. 265-268). The receivers expended upon them the following further sams: Construction- Insolvency receivers. ............--- 88,416 10 Foreclosure receivers. .--..---. ----- S874 40 —— 97,290 50 This shows that out of the earnings between June 16, 1892, and December 31, 1893, there were expended for construction and equipment and car-lrust payments upon the identical premises deseribed in the eon. ——-——- SAnine G 65 GaGa ccuenceeeeen sana ceanes $468,424 79 None of this was for rails purchased from the appellee, because no such rails were purchased by the receivers until after December 31, 1803 (p. 245). 3. Floating debt of the Richmond and Danville Company now remaining unpaid |). 3/5, 398): Total debt remaining unpaid _-..----....--.-.----- $314,824 71 Deduct Pullman Co. for car mileage. ~-$90,752 81 Western Union Co. for constructing joleprapn Times. - <.-= 2-54. meen 22,186 53 Sisco EEO USO. OH Claims for materials and supplies remaining unpaid $205,385 37 consisting of : Carnegie Co. for rails_- ~~ -- _-. $125,067 39 ADF Dtnelho en oes seek _ 80,317 98 This shows that the income, not only of the insolvency receiver- ship, but also of the foreclosure receivership, was expended upon LALLY LAE GL 4 First. Appellee’s claim as a supply creditor is free from objection, the property in order to hold it together for the bondholders, while these obligations for materials and supplies were allowed to remain unpaid. FIRST. The diversion of current earnings has been fully established. The Supplemental Brief —- the statement that the car-trust aud rental payments were “made for the purpose of keeping “ the property together for the benefit of the bondholders.” The facts upon the subject are stated in detail on pages 29 and 30 of the Principal Brief for the Appellee. At the beginning of the proceed- ings on June 15, 1892, that was stated in the Clyde bill as the object of the suit (pp. 14-16). Upon June 28, 1892, in the petition for leave to issue receivers’ certificates, it was said that the object was to “ preserve the system of roads against dismemberment * * “as well as to preserve and increase the present market value of the * bonds and stocks belonging to the rece ivership ” (p. 26). On this petition and notice to the trustee under the eonsolidated mort- gage, an order was made authorizing the receivers to apply the in- come coming into their hands to payment of car trusts and rentals (pp. 25, 137). The accounts of the receivers, as above stated, show that this application of the income was made during the eighteen months of the two receiverships to the extent of $4,136,877.74. The reorganization agreement of May 1, 1803, stated that this had been done because it was “sought to hold together the various ‘ properties embraced inthe system,” (p. 512) and in so doing the “receivers had become so depleted of cash” that they had been obliged to default upon obligations prior to the consolidated mortgage (p. 953, note +). This establishes that the intention was to hold the property together for the benefit of the bond- holders, and that the income of the receivership was expended for that purpose. Exhibit B, p. 431, to which the Supplemental Brief refers, shows that between August Land November 30, 1893, the foreclosure receiv- ers paid rentals on ten leased roads. Accordingly, in the foreclosure 5 First. Diversion of earnings has been fully established. decree eight of the principal leaseholds were decreed to be sold (pp. 964-268), and they were bought in by the reorganization committee and conveyed to this appellant (pp. 295, 296). This makes it clear : that the property was in fact held together for the benefit of the bondholders by this expenditure of the income of the receivership. Indeed, the Supplemental Brief itself states (p. 4) that some of the : leaseholds “were indispensable to any profitable working of the “ Richmond and Danville Railroad.” Mi But, as appears above (xpra, pp. 1-3), the diversion did not i cousist merely in Interest and Car Trust payments. During the p insolvency receivership there was expended for Construction and : Equipment the sum of $313,524.66 and during the foreclosure 3 receivership for the same purposes the sum of $43,629.89. z In Burnham vs. Bowen, 111 U. S., 776, expenditures of exactly the same character were made by a receiver. It was held that this constituted diversion and that a ereditor of the company who had : taken its acceptances, and even renewed them after the receiver was appointed, was entitled to payment prior to the bondholders. The Supplemental Brief vigorously claims that the consolidated mortgage bondholders were not chargeable with anything done in the Clyde suit. Under date of June 28, 1892, the complainants in that case petitioned for an order allowing the receivers to divert the income from payment of current expenses. An order to that effect was made upon the following day after hearing counsel for the Central Trust Company, the trustee under the consolidated mortgage (p. 135). The fact that counsel attended upon one day's notice and made no opposition, indicates that the order was made with the co-operation of the Trust Company. Importance is attached to the fact that when the Central Trust Company was granted leave to formally intervene in the insolvency suit, its petition did not set forth that it was trustee under the con- solidated mortgage. But that is a matter of very little conse- quence. As just shown, the Trust Company, upon June 28, 1892, had co-operated in the order authorizing the receivers to di- vert the income to payment of rentals and car trusts (pp. 28, 135, 167, 168). Upon July 18, 1892, the Trust Company filed a petition praying to be allowed to intervene (pp. 138-141). It is true that this did not enumerate the many mortgages under which the Trust PIER GEDA IRA ARE AEM GD EMER LTE IY MANETS AREER HD SP SIV SIE LEVATOR 4 First. Appellee’s claim as a supply creditor is free from objection, the property in order to hold it together for the bondholders, while these obligations for materials and supplies were allowed to remain unpaid. FIRST. The diversion of current earnings has been fully established. The Supplemental Brief denies the statement that the car-trust aud rental payments were “made for the purpose of keeping “ the property together for the benefit of the bondholders.” The facts upon the subject are stated in detail on pages 29 and 30 of the Pnincipal Brief for the Appellee. At the beginning of the proceed- ings on June 15, 1892, that was stated in the Clyde bill as the object of the suit (pp. 14-16). Upon June 28, 1892, in the petition for leave to issue receivers’ certificates, it was said that the object was to “ preserve the system of roads against dismemberment * * “as well as to preserve and increase the present market value of the “bonds and stocks belonging to the receivership” (p. 26). On this petition and notice to the trustee under the eonsolidated mort- gage, an order was made authorizing the receivers to apply the in- come coming into their hands to payment of car trusts and rentals (pp. 25, 137). The accounts of the receivers, as above stated, show that this application of the income was made during the eighteen months of the two receiverships to the extent of $4,136,877.74. The reorganization agreement of May 1, 1893, stated that this had been done because it was “sought to hold together the various “ properties embraced inthe system,” (p. 512) and in so doing the “receivers had become so depleted of cash” that they had been obliged to default upou obligations prior to the consolidated mortgage (p. 933, note +). This establishes that the intention was to hold the property together for the benefit of the bond- holders, and that the income of the receivership was expended for that purpose. Exhibit B, p. 431, to which the Supplemental Brief refers, shows that between August 1 and November 30, 1893, the foreclosure receiv- ers paid rentals on ten leased roads. Accordingly, in the foreclosure 5 First. Diversion of earnings has been fully established. decree eight of the principal leaseholds were decreed to be sold (pp. 964-268), and they were bought in by the reorganization committee and conveyed to this appellant (pp. 295, 296). This makes it clear that the property was in fact held together for the benefit of the bondholders by this expenditure of the income of the receivership. Indeed, the Supplemental Brief itself states (p. 4) that some of the leaseholds “ were indispensable to any profitable working of the “ Richmond and Danville Railroad.” But, as appears above (svpra, pp. 1-3), the diversion did not consist merely in Interest and Car Trust payments. During the insolvency receivership there was expended for Construction and Equipment the sum of $313,524.66 and during the foreclosure receivership for the same purposes the sum of $43,629.89. § In Burnham vs. Bowen, 111 U. §S., 776, expenditures of exactly the same character were made by a receiver. It was held that this constituted diversion and that a creditor of the company who had taken its acceptances, and even renewed them after the receiver was appointed, was entitled to payment prior to the bondholders. i f ; Soe wesiets a Bes Pes had Pa —— = ch PGS PTY RAO NT The Supplemental Brief vigorously claims that tlie consolidated mortgage bondholders were not chargeable with anything done in : the Clyde suit. Under date of June 28, 1892, the complainants in that case petitioned for an order allowing the receivers to divert the income from payment of current expenses. An order to that effect was made upon the following day after hearing counsel for the Central Trust Company, the trustee under the consolidated mortgage (p. 135). The fact that counsel attended upon one day's notice and made no opposition, indicates that the order was made with the co-operation of the Trust Company. Importance is attached to the fact that when the Central Trust Company was granted leave to formally intervene in the insolvency suit, its petition did not set forth that it was trustee under the con- solidated mortgage. But that isa matter of very little conse- quence. As just shown, the Trust Company, upon June 28, 1892, had co-operated in the order authorizing the receivers to di- vert the income to payment of rentals and car trusts (pp. 28, 135, 167, 168). Upon July 13, 1892, the Trust Company filed a petition praying to be allowed to intervene (pp. 138-141). It is true that this did not enumerate the many mortgages under which the Trust ppt ogre Eten ena nallile — 6 First. Diversion of earnings has been fully established, Company was the trustee, and specified merely the first mortgage and the emergency loan. But by a paper dated upon August 10, 1892, the Trust Company, as trustee under the consolidute/ mort- gage, requested the court, if it should determine to continue its ju- dicial possession of the property, to appoint Huidekoper and Foster receivers (p. 167). After the date of that request aud upon August 16, 1892, an order was entered allowing the Trust Company to intervene generally and not as trustee under any specific mort- gage, “on the condition that it hereby submits tothe several orders heretofore entered herein” (p. 167). Subsequent orders were rega- larly made on notice to the Central Trust Company generally (pp. 186, 194, 205, 208, 217). There is, therefore, no question that the corporation which was trustee under the consolidated mortgage had notice of every- thing done in the Clyde case, and, whenever it saw fit, acted in behalf of the bondholders secured thereby. The question upon which the Supplemental Brief lays such stress is whether the Trust Company was a party to the suit as trustee of the various mortgages, or only of two of them. This distinction is so minute as to be without importance. But, in any event, it must be deemed settled by the terms of the order which made the Trust Company a party generally without any distinction as to the various mortgages under which, as it had already advised the court, it was trustee. This made it a party for all purposes, and it wasin court in behalf of whatever interests it had in the subject matter. In any event, this point affects nothing save the action of the insolvency receivers. But after the bill was filed to foreclose the consolidated mortgage and the receivers were appointed thereunder, with the consent of all parties, an order was entered (p. 245) author- izing them to continue the same course of diverting the earnings, and this they accordingly did. As above stated, between August 1, 1893, and December 31, 1893, the foreclosure receivers paid out for Interest and Rentals, $626,735.85 ; for Car Trusts, $51,160; for Construction and Equipment, $43,629.89. This diversion was made in the foreclosure suit of the conse/i/uted bondholders themselves. There can, therefore, be no question in regard to their acquiescence in it, and the amount was far more than sufficient to pay the appellee. In view of these circumstances, under Burpham vs. Bowen, 111 U.S., 776, and Virginia and Ala- — - ABSA eS OY HA stoece BPR MSN ME OSIERD ES RTD THF fod ‘ First. Diversion of earnings has been fully established. bama Coal Co. vs. Central Railroad Co., 170 U.S., 355, the decree in appellee’s favor was correct. The statement is made (Supplemental Brief, p. 7) that the in- solvency receivership was a burden upon the consolidated bond- holders. So far as concerns the expenses of the insolvency receiv- ership, this was not the case. The payments and receipts of the foreclosure receivers on account of the prior receivership were as follows (pp. 426, 427): Pad TOMB. . 220 ccne ccc ceewesesenes--- $467,562 79 Loss and damage claims..------.----- 4,163 45 ii DONE: 6 oon a cenemesavees 53,257 20 -——— ——-—_ $524,983 44 bare OE IN in a. ice som ny i neenene 515,877 87 Total paid by foreclosure receivers on account of in- solvency receivership. ..-.....---------- ..------- - $1,040,861 31 As against this there was received on account of the former receivership : 7A AN ete a On eA At Cle Sag ABIGES Pe AUR Bilge re $141,825 19 Accounts collected. -.-...-.--.-------- 384.473 10 525,798 29 Bene MAIR. 2) nk ccs Ene w ens omesmesee ans $515,063 02 This balance was deamak exactly the amount paid for materials and supplies. But when the new company took possession, it received material and supplies to the amount of 3500,000 from the foreclosure receivers (p. 303). ‘This shows that the material and supplies for which the insolvency receivers had contracted came into possession of the foreclosure receivers, and the estate accord- ingly was not diminished ‘by payment therefor by the latter recelvers. So far as concerns the, arrears of interest during the insolvency receivership and the issue of receivers’ certificates (Supplemental Brief, p. 7), it has been already pointed out, and was stated in terms in the reorganization’ agreement, that these were the results of the effort to *S hold together the various properties embraced in “the system” in the interest of the. bondholders (pp. 912, 5383, notet). That effort has proved successful as is shown by the existence of the appellant. The appellant, therefore, is not im a position to complain that when the estate came into the hands of the foreclosure receivers it was burdened by the results of the effort. EE TR RAMEN meee BS wk , 4 4 2 bs ‘ * BS 3 4 SABRE! detente, nxt ie 9 APETS IEE ete P Seis hs ieee Santana Se ees Angie tea rance Ale SECOND. There is nothing in the objections urged to the appellee's standing as a supply creditor. In the Supplemental Brief (pp. 7, 8) the appellant repeats the claim already urged in its Principal Briefs—that the cost of these rails is to be regarded as a permanent betterment, and not as an expense necessary to keep the road in operation. In support of this contention is cited Mackintosh vs. Rail- road Co., 34 Fed. Rep., 582. That was a controversy between two classes of stockholders under a reorganization. The reorganization agreement provided that the holders of common stock had no rights, but were merely “ provisional stockholders”, until the preferred stock had been paid seven successive annual dividends of seven percent. The new charter provided that the funds applicable to the payment of such dividends were the net income “after paying interest on prior bonds, repairs, expenses “of equipment,’ ete. At the first meeting of the Board of Di- rectors it was resolved that “under operating expenses only such “ improvements and additions shall be included as are necessary to ‘ keep the property efficient, and that all bevond this shall be pro- “ vided for out of funds other than net earnings.” It appeared that a very considerable sum had = been expended in re- placing iron rails with steel rails, using the iron rails for sidings. The expenses of these changes were in great part charged against the earnings, instead of being charged to new coustruction. The court said that the fact that the charter provided that repairs should be paid out of the net income did not, as between the two classes of stockholders, warrant this method of dealing with the earnings of the company. ‘Its effect was not “to keep the track in repair—in the same state of efficiency as it ‘existed in on October 1, IS80--but to improve and enhance its “ value at the expense of earnings, which are thus reduced, and the provisional stockholders correspondingly postponed” (p. 608), Reference is also made to the case of Grant vs. Railroad Co., 93 U.S. 225. The point decided there was that the expression “ profits used in construction,” within the meaning of the Internal tevenne Act, did not embrace earnings expended in repairs for keep- ing the property up to its normal condition. —_ 9 Second. There is nothing in the objections urged to appellee's standing as a supply creditor. ‘These authorities have no application to the present case. The record does not show that these rails were used for new construe- tion; it shows, on the contrary, that they were used merely in order to maintain the property in suitable condition for opera- tion. The rails were purchased from the appellee generally and not for use in relaying any special portion of the track or in constructing any new track (pp. 370-372). The testimony of the General Manager (pp. 482-484) shows that the rails were distributed over various parts of the system. These rails were, of course, all used prior to the sppointment of the receivers. Upon August 12, 1892, very shortly after their appointment the receivers filed a report stating that the financial difficulties of the Railroad Company during the last two yeamp had “ prevented the “ operating officers from being able to expend the proper amount «for vee rails, and upon the roadbed and structures, tv keep the . ‘railroad in the condition in which it should he maintained, and “it will be necessary for the receivers, during the summer and “autumn to make a much larger eee than they would for “ordinary maintenance” (p. 166). Upon January 16, 1894, the foreclosure receivers again stated (p. 246) ia a petition to the court that “for the proper and economical operation of the lines of railroad “of which they are receivers, and for the safety of passengers and “property transported over such roads, two thousand tons of new “ steels rails are an absolute necessity,” and an order of the court was made authorizing purchase of the same (p. 247). Upon April 13, 1894, the same receivers again stated in 2 petition to the court that “for the proper, safe and economical operation of the lines of rail- “road over which they are receivers, and the proper and safe “handling of the freight and passenger business on said roads, as “required by the orders of this court appointing them as_ receivers, “ they require at the present time about twenty-five hundred (2,500) “tons of steel rails” (p. 251), and an order of the court was made authorizing the purchase of such rails (p. 252). In the face of these facts there is no warrant for claiming th: at the rails now involved, which were purchased in 1891, were’ used for new construction rather than for the purpose of maintaining the road in a condition suitable for operation. Attention may again be called to the fact that in Farmers’ Loan EN Oe TS Re 10 Second. There is nothing in the objections urged to appellee's standing as «a supply creditor. and Trust Co. vs. Railway Co., 33 Fed. Rep., 778, where question was raised precisely with reference to claims preferential to the mortgage, it was held that steel rails were entitled to preferential payment as coming within the description of expenses of operation, Objection was made that they were properly betterments, but the court said, “this objection is untenable, for if these “ betterments were necessary, and added to the value of the security “ held by the bondholders, and were made without objection on “their part, they cannot be heard to complain” (pp. 785, 786). Similarly it has recently been held in N. Y. Guaranty & Indem- nity Co. vs. Railway Co., 83 Fed. Rep., 365, that the cost of a steel cable must be regarded as a preferential operating expense. So, too, in Hale vs. Frost, 99 U.S., 889, and Wood vs. Railway Co., 70 Fed. Rep., 741; 75 Fed. Rep., 54, 59, it was held that material furnished in order to keep the equipment in condition for use must be re- warded as of the same character. It is clear that there is no dis- tinction in principle between material furnished for repairs upon the equipment and that furnished for repairs upon the roadbed. Each constitutes a very large part of the invested capital of the company, and as to each there is the same necessity to maintain it in condition for eficient operation. The equitable rights of the appellee as a supply creditor are fully supported by Burnham vs. Bowen, 111 U. S., 776, and Virginia & Alabama Coal Co. vs. Railway Co., 170 U.S., 355, together with the other authorities upon the subject cited upon the appellee's Principal Brief (pp. 15-28). It is signiticant that neither the Prin- cipal Briefs nor the Supplemental Brief on behalf of the appellant make any substantial effort to distinguish these cases. In fact, so far as concerns the Coal Company case, its existence is practically ignored, Ope Se Ne soe er Ree ae re fe * , N ie 3 DLA MRS “SA 11 THIRD. . 4 The suggestions of the Supplemental Brief re- } garding the effect of the reorganization are without — weight. : 1. The record fully presents the questions heretofore urged in that regard by the appellee. : The Reorganization Agreement was attached to the intervening petition of the appellee, setting forth its rights and praying enforcement thereof (pp. 365-370, 503-563). It was admitted by the answer to said petition (pp. 376, 377, 378), and was re- ferred to as in the case in a stipulation filed with the Masters regarding the issue of securities under the reorganization agreement (p. 386). The agreement was, therefore, a part of the pleadings which were before the Masters when they passed upon the claim of the appellee. As it was set up in the petition and ad- mitted by the answer, it was, of course, not necessary to offer the agreement in evidence. i The hearing before the Masters was closed upon May 18, 1894 © (p. 381), and the sale did not take place until June 15, 1894 (p. 289). So that it would not have been practicable to introduce testi- mony to show that the reorganization was carried into effect. That, however, appears from the record, because it shows — that the property was sold upon June 15, 1894 (p. 289); and was purchased by the purchasing committee of the bondholders (pp. 200, 291) who vested title in a new corporation to be known as the Southern Railway Company (p. 294), and that the Southern Rail- way Company was accepted as the purchaser by order of court entered upon June 15, 1894, upon condition that it should pay such further claims as it might be directed by the court (p. 301). The | corporation thus created is the present appellant. The tiles of the =~ court sufticiently show these facts. They ere notand cannot be con- — troverted in any respect. The real purchasers of the property are the reorganized stockholders of the former company. They are its owners under the name of the Southern Railway Company. This court of equity still has control of the property for the purpose of com- pelling the purchaser to do equity as regards claims generally against the property (pp. 280, 282, 301). As the reorganization eee | 12 Third. The suggestions of the Supplemental Brief regarding the effect of the reorganization are without weight. agreement provides that the stockholders of the former company shall still have an interest in the property to the exclusion of its floating debt, it is entirely competent for the court to direct that the stock- holders as reorganized shall pay that floating debt. The remedy by independent bill would be extremely slow and, as the parties interested, namely, the appellant and the appellee, and also the subject matter are under the full control of the court, and the facts cannot be denied, there is no reason why the appellee should be remitted to an independent bill which might raise difficult questions regarding the jurisdiction and the remedy. Certainly the statement of the Supplemental Brief that the purchase contemplated by the reorganization plan may never be cousummated, is entitled to no weight in view of the fact that the party which makes that statement is shown by the record to be the product and result of that purchase. 2. There is no merit in the distinction sought to be made be. tween the present case and Railroad Co. vs. Howard, 7 Wall, 292. The suggestion is made that the present case differs from the Howard case because in the latter the bill sought a ratable applica- tion of the fund among all unsecured creditors, while here the ap- pellee is seeking satisfaction merely of its own debt. But this is not an accurate statement of the position. The present appellee is asserting its own claim, but this does not affect in any respect the rights of those similarly situated, and no effort is made here to prejudice those rights. As already shown (supru, p. 3) the amount of those claims is very small; probably they also are entitled to payment. As regards the amounts to be received under the terms of the reorganization plan by the stockholders of the Richmond and Danville Company, the facts are fully stated upon pages 48 and 49 of the Principal Brief for the appellee. It will be seeu from that statement that the holders of both bonds and preferred and common stock of the Terminal Company received new preferred stock and new common stock for the express reason that they already held the capital stock of the Richmond and Danville Company, and that none of these holders of Terminal securities paid any assessment, save the holders of the common stock. They, it is true, were to pay in a large amount to clear RRL IT ERLE TBAT NS LIE LLNS RD PITTS RAMONE SL STEMS OHNE ON SRST — 13 Third. The suggestions of the Supplemental Brief regarding the effect of the reorganization are without weight. off the debt of the Richmond and Danville Company. This doubt- less appeared to counsel who prepared the plan necessary by reason of the Howard case. But no part of this fund has been applied to paying the debts of the appellee and a few others. Why this is the fact the record does not disclose. It is sought to distinguish the Howard case upon the ground that the mortgage bondholders, there in express terms released — and discharged their lien upon the portion of the proceeds of sale payable to the stockholders of the former company, and that, — therefore, that portion was assets of the Railway Company. This — does not really distinguish that case from the present. There " the lien was discharged only by the reorganization agree- 3 ment in the manner therein prescribed. So, too, here it ; could properly be said that the consolidated — bondholders i released their rights against the securities representing the interest & of the stockholders in the new company. ‘The reservation con- © tained in the reorganization agreement which is set forth in the ‘ Supplemental Brief (pp. 15, 14, therefore, has no bearing upon | this question; for it was evidently useless to provide that the claims of all stockholders and creditors should be cut off by the fore- is closure, while at the same time a substantial interest in the prop- © erty was secured by the reorganization to the stockholders, but the 7 creditors were left unpaid, ‘Phe precise point ruled in the Howard e case is that this cannot be done. H The objections urged regarding the rights of the appellees in © view of the reorganization are based upon technical refinements. z It is submitted that as there is no question as to the facts, the ad parties are before the court and the property is still within its con- i trol, the court will dispose of the matter apon the merits. It is not x accurate to speak of the question as one regarding the proceeds of ; the sale ; the point is really whether the reorganized stockholders of the debtor company shall pay its debts before dividing among themselves whatever equity there may be in its property. p. C. Kyox, Davin WiLicox, Of Counsel. PELL OS ate ars, (12100) --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386018_0409%3A6. Public record. Not legal advice.