General Stores Corporation v. Shlensky

PETITIONER:General Stores Corporation
RESPONDENT:Shlensky
LOCATION:Pittsburgh Party Headquarters

DOCKET NO.: 170
DECIDED BY: Warren Court (1955-1956)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 350 US 462 (1956)
ARGUED: Jan 18, 1956
DECIDED: Mar 26, 1956

Facts of the case

Question

Audio Transcription for Oral Argument – January 18, 1956 in General Stores Corporation v. Shlensky

Earl Warren:

General Stores Corporation, verus Max Shlensky, Securities and Exchange Commission et al

Mr. Rosen.

Aaron Rosen:

Mr. Chief Justice, Justices of the Court.

This is an appeal by certiorari for the Court of Appeals Second Circuit.

The petitioner, General Stores Corporation, seeks to reverse the — the decision by an — a divided bench of that Court which affirmed the District Court.

The Court of Appeals held that the debtor in this case, which filed the petition on arrangement under Chapter XI of the Bankruptcy Act with its unsecured commercial and trade creditors, cannot proceed in Chapter XI unless the debtor amended its petition to comply with the requirements for a corporate reorganization under Chapter X.

In filing its petition for an arrangement under Chapter XI, the debtor was seeking first an extension of time for the payment of its general, unsecured and commercial trade debts, and during the pendency of the proceeding, it hoped to obtain the liquidation of the balance of its very burdensome leases.

General Stores was formerly known as the D. A. Schulte, Inc.

It operated a large chain of the small shops selling tobacco and sundry offers.

As a result of the gradual change in merchandising in that type of business and perhaps the borrowing habits of the public, the company decided that if it continued in that type of business it meant financial disaster.

It decided that it would be necessary that it acquire successfully, established chain drugstore outlets.

This aim, on the part of the debtor company, was accomplished in 1953, and in 1954, by the purchase for some $4 million of the Ford Hopkins Company that had about 56 or 57 chains of drugstores.

And the purchase of the Stineway Company that had approximately the same number of retail drugstores.

Now, the acquisition of these two successfully established chains indicated to the debtor company a return of approximately 17% on the investment or the rather the purchase price.

And it should be noted that this 17% was anticipated to be a net return, a close to a net return because of the benefits of the tax laws carry forward that the company hoped to obtain.

The continued operation by the debtor of its remaining used units that it had and the very substantial expense that was occasioned by its burdensome leases was gradually resulting in a point arriving where it was unable to pay its commercial and trade debts as they were maturing.

In order to obtain the relief from its inability to pay its commercial debts as they were maturing, this debtor filed a petition for an arrangement under Chapter XI.

General Stores is a public stock corporation.

It has but one class of stock, common.

The stock is traded on the American Stock Exchange.

Part of the stock is registered with the Securities and Exchange Commission.

There are about 2 million shares of this common stock outstanding that has a par value of $1 a share.

And there are approximately 7000 shareholders in all, the public.

Now, except for this common stock issue, there is no other stock or security whatsoever issued by this debtor.

At the time that the petition was filed for an arrangement, the debtor owed about $2 million to the former owners of the stock of the Ford Hopkins Company.

This debt, which represented the balance owing on the purchase price, was secured by all of the stock of the Ford Hopkins Company and by all of the stock of the Stineway Drug Company.

This is the only secured debt.

And, of course, this obligation to this secured creditor was not to be affected by the proposed plan of arrangement.

In addition, this debtor owed to general unsecured, merchandise and trade creditors an amount somewhat in excess of $500,000.

It also owed to its wholly owned subsidiary, the Stineway Drug Company $1,300,000 representing moneys borrowed from time to time from that company.

Aaron Rosen:

The assets at the time of the filing of the petition amounted to about $5 million and consisted of the capital stock of the two wholly owned subsidiaries, the Ford Hopkins and the Stineway Drug at about $4 million an inventory cash and other miscellaneous assets of about $1,000,000.

Now, the plan of arrangement filed by the General Stores proposed an extension only for the payment of its generally unsecured merchandise and trade debts as follows.

20% in cash upon the confirmation of the plan, 20% annually thereafter over the next four-year period and the only obligations affected by this propose plan of the general unsecured commercial and trade debts.

They’re represented here by the creditors committee and by the attorney for the wage claimants.

The Commission moved in the District Court.

Felix Frankfurter:

In other words, it was then that the arrangement touched only these unsecured creditors and therefore, if General Stores had gone on with the business subject to eventuality of the (Inaudible) events seems nothing new, the situation of the stockholders will remain the same.

Aaron Rosen:

Exactly, sir.

And there were no other security holders of any kind.

Now, the Commission moved in the District Court for leave to intervene in the Chapter XI proceedings.

And it asked that the petition be dismissed which was filed for an arrangement unless it was amended to comply with the provisions of Chapter X for corporate reorganization as we understand it.

Now, the reasons advanced by the Commission and the basis of its motion is its contention that Chapter XI is not available for corporations with publicly held securities.

Felix Frankfurter:

Were these the representatives coming from each (Inaudible)

Aaron Rosen:

No, sir.

Mr. Shlensky represented two-tenths of one percent of the outstanding stock.

Felix Frankfurter:

Did he — wasn’t there a truth meaning it’s solely for himself that was (Inaudible)

Aaron Rosen:

I believe it may have been in this represented capacity.

I don’t know that detail, sir.

It was merely an allegation on this one.

Felix Frankfurter:

In other words, I want to know that the stockholder — whether the stockholders were the bargainers objected to it.

Aaron Rosen:

I — I can say —

Felix Frankfurter:

On Chapter XI arrangement or whether the — whether the suit really is with the Security and Exchange Commission representing its note within the public interest?

Aaron Rosen:

Well, I — I can best answer that question this way.

After this stockholder, Shlensky started the proceedings then for the first time, that the Security and Exchange Commission stepped in the case.

It was made a party to the proceedings by the motion of this small stockholder.

The District Court affirmed by the Court of Appeals granted the motion of the Commission on the grounds that a large corporation with publicly held stock may not have an arrangement — may not have an arrangement with unsecured creditors regardless of the plan through Chapter XI proceedings but that it must resort to a corporate reorganization through Chapter X so that the appraisal of the Commission could be obtained by the Court.

Neither of the courts below found any express statutory provision in Chapter XI which excludes a large corporation with publicly held stock from seeking an arrangement with general unsecured commercial and trade creditors.

Both courts and the Commission in this Court rely exclusively upon their interpretation of this Court’s decision in the U.S. Realty case.

We believe that it must be conceded that nowhere in Chapter XI is it expressly provided that large corporations with publicly held stock issues cannot file a petition for an arrangement under that Chapter.

And we believe that it must further be conceded that on — on at least three occasions, Congress was faced with the suggestion to so legislate and Congress refused to do so.

The first occasion was in the formative stages of the Chandler Act in 1936.

Aaron Rosen:

At that time a special committee of Congress recommended that the acting clue to provision that large corporations with publicly held stock of over 100 stockholders should not be or should be excluded from the benefits of Chapter XI.

It was not enacted.

The second occasion was in 1940 after the District Court and the Court of Appeals in the U.S. Realty case held that there was no exclusion in Chapter XI from the large corporations with publicly held securities.

At that time, a bill was introduced in Congress to exclude such corporations from the benefit of Chapter XI.

Congress again failed to enact any such exclusion.

The third occasion was in 1952, and that was after this Court’s decision in the U.S. Realty case.

And particularly after it was noted from Mr. Justice Stone’s pointing it out in the U.S. Realty case that there was a lack in the statute of any definition of a large corporation with publicly held securities on which definition the Court could find the basis for an exclusion.

Congress at that time codified one aspect of the U.S. Realty decision but again failed to enact in Chapter XI any exclusion against large corporations with publicly held securities.

Felix Frankfurter:

Mr. Rosen, your burden to establish that or proceeding under Chapter X is forbidden by Chapter X, in order to establish the — an arrangement under Chapter XI is allowable.

Aaron Rosen:

Had this corporation filed a petition for reorganization under Chapter X seeking in that proceeding, only an adjustment or extension of its commercial and trade debts, it would not have been filed in good faith.

And the statute says that when the Court receives a petition for reorganization and before it approves it, it must find that it’s filed in good faith.

Felix Frankfurter:

Then your position is it couldn’t, not that —

Aaron Rosen:

Correct.

Felix Frankfurter:

— that’ll be between X and XI which is — which is allowable as in XI — Chapter XI procedure.

Aaron Rosen:

Yes, sir.

And as I’d like to finish my answer to your question, Mr. Justice Frankfurter, it is considered bad faith if the relief requested under Chapter X, had this company filed the petition for reorganization, could have been granted under Chapter XI.

Now, if I may, in the absence of any statutory exclusion of large corporations with publicly held securities, what are the substantive criteria for dismissing a proceeding in Chapter XI which would justify excluding certain corporations?

The only substantive rule for dismissing a petition is, and it always has been, contained right within the Act in Section 376 and Section 366 of Chapter XI.

Section 376 empowers the Court to dismiss the petition wherever the plan fails of confirmation.

Section 366 states the conditions of confirmation.

Now, the conditions for confirmation at the time of the U.S. Realty case was that the Court be satisfied that the plan was fair and equitable and in the best interest of creditors also feasible.

At that time, if the Court was not satisfied in either point, the plan could not be confirmed.

And the Court was empowered to dismiss the proceedings right in the Section 376.

This was statutory law and that was the law we submit which the majority of this Court applied in the U.S. Realty case.

As a matter of substantive law, the majority opinion stated that the most important consideration was that the plan by affecting unsecured guarantee of the mortgage certificate holders without compensating advantage, contributed — contributed by stockholders couldn’t confirm such a plan under any circumstances because it was not fair and equitable under the Boyd and the case in Los — Los Angeles Lumber case.

Secondarily, the Court said, and found, as a matter of discretion, that in view of the Securities Act of 1933, it could not be satisfied as to what was for the best interest of creditor without an appraisal and a report from the Securities and Exchange Commission who, under the Securities Act of 1933, were the special guardians of the particular creditors that were affected by the plan in the U.S. Realty case.

Now, what is there in the U.S. Realty case which could justify this Court in excluding the General Stores from the benefits of Chapter XI on the facts, the two cases are entirely different.

The decision in the U.S. Realty case, I submit, was based on the facts peculiar for that case.

The plan that was submitted in that case had a direct and adverse effect on the public security holders that held the guarantee issued by the security — by the U.S. Realty Company.

Felix Frankfurter:

Well, isn’t the ultimate that would be here suppose the security that the District Court in that case in the — under the facts of that case was entitled — would exercise the jurisdiction preceded of entertaining this with Chapter XI and that the Court of Appeals that that was not on abuse of discretion that — that the Court of Appeals in reversing that was in error.

Aaron Rosen:

I agree.

Felix Frankfurter:

Is that what it gets down to?

Aaron Rosen:

I agree.

Felix Frankfurter:

Now, this case — in this case, the District Court admitted — the District in this case — the District Court exercised its jurisdiction not to entertain Chapter XI.

Aaron Rosen:

Thats correct, and the Court of Appeals sustained it.

Felix Frankfurter:

As you say that — did you say that the (Inaudible)

Aaron Rosen:

Judge Dimock is correct.

Felix Frankfurter:

Do you — do you say that Judge Dimock couldn’t exercise discretion was so compelled when you raises the question whether he was concerned.

While this is — was an exercise of discretion whether we have the question whether the District Court (Inaudible)

Aaron Rosen:

Mr. Justice Frankfurter, I strongly submit that nowhere in the statute is there any such discretion granted to the Court.

Nowhere in the statute is a large corporation with publicly held securities excluded from the benefits of Chapter XI.

And the discretion that was discussed in the U.S. Realty Company case, we interpret as being entirely different.

Where there are public security holders affected by a propose plan of arrangement, then, the Court has the discretion of saying, “Well, I can determine now, whether or not, it’s for the best interest of creditors which I’m required to do in my discretion.

However, if it’s a simple case, I’ll do it.

If it’s a complicated case with many stockholders, I prefer to exercise my discretion that the Security and Exchange Commission shall step into the matter because they’re the guardians of that particular class of creditors.

And give me the benefit of their appraisal as to what they think should or should not be done in the best interest of creditors.”

In that case at that time, you also had the fair and equitable rule.

But the discretion, I think, from a careful analysis of the decision was not whether a large corporation with publicly held securities should be excluded.

Felix Frankfurter:

Well, the stockholders’ interest were involved in that case.

Aaron Rosen:

In the —

Felix Frankfurter:

In the Realty?

Aaron Rosen:

In the Realty case, not stockholders.

It was guaranteed certificate holders and it was the only class of creditor affected, the only class.

Now, we maintain that the moving consideration were it excluding the U.S. Realty Company from the benefits of Chapter XI, was of the fact that its plan directly and adversely affected, the unsecured guarantee certificate holders as I mentioned.

The Commission, on the other hand, denies that it was the plan which was the moving consideration for the U.S. Realty decision.

Instead it contends it was a fact that the U.S. Realty Company was a large corporation with publicly held stock which constituted the moving consideration for excluding it from the benefits of Chapter XI.

Felix Frankfurter:

Would you think your case was different or this case was different if the ordinary creditors opposed it — the arrangement?

Aaron Rosen:

If the ordinary creditors oppose the arrangements, there isn’t any — quite you mean the commercial and trade credit?

Felix Frankfurter:

Yes.

Aaron Rosen:

It could never be confirmed.

Aaron Rosen:

This would automatically be dismissed or adjudicated, whichever the Court determines after a hearing is for the best interest of creditors.

Felix Frankfurter:

Well then, it would have to go to adjudication?

Aaron Rosen:

Not necessarily.

Under the Act, where a plan for the adjustment or settlement of general unsecured trade creditors, is not confirmed because for whatever the reason may be, as permitted under Section 366, then the Court holds a hearing and determines what’s best for creditors.

Shall I direct an adjudication and the distribution of assets maintain the possibility of preference actions or such or shall I dismiss it?

Where will the benefit of creditors best protected?

That’s what the Court is required to do.

Now, unless the Commission is correct in its interpretation of the U.S. Realty case, that case cannot be controlling in ours.

Mr. Justice Stone stated in the U.S. Realty case that most important in his determination is that — is the fact that the plan proposed by the U.S. Realty did violence to the fair and equitable rule.

And that Chapter XI was inadequate to affect stockholders who would, of necessity, be affected by any plan of arrangement.

Of course, you just couldn’t comply with the fair and equitable rule as the law then existed.

Stanley Reed:

That — that time was the fair and equitable rule in both —

Aaron Rosen:

In both —

Stanley Reed:

— X and XI

Aaron Rosen:

It was, sir.

And in 1952, the fair and equitable requirement was removed from Section XI as a requirement for confirmation of the plan.

Stanley Reed:

Will you discuss later why that was removed from the list?

I don’t want to interrupt your argument.

Aaron Rosen:

Well, I — I believe — I think it will be discussed, sir.

Mr. Justice Stone further stated that it didn’t appear — did not appear that any plan could be proposed under the fair and equitable requirement which didn’t affect stockholders.

It just hadn’t.

Because you couldn’t tear down or pay less to general creditors under that rule without some compensating benefit being paid by the stockholders.

It is our contention that the majority holding in the U.S. Realty case is based upon the inadequacy of Chapter XI to confirm the plan that was presented by the U.S. Realty Company in that case.

And Mr. Justice Stone, after making the observations which existed in that case that Chapter XI was not intended for the large corporation with public securities, said, “Still more important are the differences in the remedies obtainable under the two chapters which results from the differences in the nature of the two proceedings and in the securities affected by them.

We believe that we’re confirmed in our opinion as to the basis of the U.S. Realty decision by the fact that Congress, in 1952, changed the standards for confirming a plan in Chapter XI, rather than in enacting any legislation which would exclude large corporations with publicly held stock from the benefits of that chapter.

This Court in the U.S. Realty case pointed out that the fair and equitable rule as I stated made it almost impossible to confirm a plan of arrangement without affecting stockholders who therefore, must be permitted to become parties to the proceedings.

And that couldn’t be done under Chapter XI.

In 1952, Congress removed the fair and equitable requirement for confirmation of arrangements under Chapter XI.

And it removed the necessity for making stockholders parties affected by the proceeding.

Well, I — I see that my time is getting very close and I would like to state, if I may to the Court, the five important points that we stress for the reversal of the court below.

Aaron Rosen:

The first is, that there’s nothing contained in the statute which excludes large corporations with publicly held securities from the benefits of Chapter XI.

My second point is, the only substantive criteria for the dismissal of petitions under Chapter XI are contained within the law itself, Section 376 and Section 366 as I mentioned before.

My third point is that, the Court, this Court in the U.S. Realty case did not add to the criteria for dismissal.

It merely applied the existing law.

And my fourth point is that the result in the U.S. Realty case does not apply to our case at all, because as Justice Stone stated in the U.S. Realty case, the important consideration is the plan which adversely affected the public security holders.

And my last and final point, is that the 1952 Amendment, which is Section 328, did not add any additional criteria for the dismissal of the petition by — by saying large corporations are excluded or certain types of corporations are excluded.

It merely added a procedural remedy from that portion of the U.S. Realty case which was codified and nothing else.

Thank you, sir.

Earl Warren:

Mr. Goldweber.

Max Goldweber:

If the Court please.

This is an appeal by the Wage Claimants who formally employed by the petitioner in support of the petitioner’s brief before this Court in seeking the reversal of the judgment below in the Circuit Court of Appeals.

There are 174 wage claimants here with claims approximating a quarter of a million dollars.

There are also priorities totalling some approximate $90,000.

Now, pursuant to Chapter XI Section 64 (a) of the Bankruptcy Act, these claimants are entitled to a priority which amounts to this $90,000.

Now, under the order and the judgment appealed from, these wage claimants are completely deprived of this priority if the order below and the judgment below are left to stand.

Because under the provisions of Chapter X, Section 102 of the Bankruptcy Act, it is specifically provided that Section 64 of the Bankruptcy Act shall not be applicable to proceedings under Chapter X.

Now, the order of the District Court is self-executing in that either the petitioner change or amend its petition to Chapter X or it be dismissed.

And were to be dismissed, we would automatically lose this priority.

Now, the wage earners therefore, would be left at the mercy either of the debtor where he — were it to amend to Chapter X or at the mercy of the general unsecured creditors were they to file an involuntary petition for bankruptcy.

Now, the rights of these wage earners can only be protected by a continuation of the Chapter XI proceedings or by an adjudication of the debtor under the direction of said proceedings be continued as a straight bankruptcy.

Now, I need not point out to this Court that the wage earners have been under the special protection of Congress and the courts and there are many, many cases have been cited in our brief in conformity with this.

Harold Burton:

If the wage earners have claimed for much more than the time they gave him a land, how — how long do they have to be in the Court, three months or something?

Max Goldweber:

Three months.

Harold Burton:

(Inaudible) you — you have a less than three months wages?

Max Goldweber:

That’s correct.

For or up to $600 maximum.

And this is a claim for severance pay under a contract between the six operating unions which I represented and the debtor.

Harold Burton:

That is they claim a longer term?

Max Goldweber:

Oh, no.

No, no.

Harold Burton:

Only it was the three months?

Max Goldweber:

Only for the three months as to the priority.

Those sums over and above $600 are general — are general creditors.

Harold Burton:

It’s fairly the same in both either on the X and XI.

Max Goldweber:

Well, yes.

The general unsecured creditors would make no difference as to the priorities.

Harold Burton:

Do you say under XI, they have a 3 months claim but under the X they don’t.

Max Goldweber:

Under XI Section 64 (a) gives them a priority, to give up to $600.

Now, of the quarter million dollars only $90,000 represents a priority approximately $155,000 represents general unsecured creditors.

We would come in under both phases of this.

However, it is our contention that we do not want to lose this very real advantage we have of having a priority because all of these wage earners no longer work for the petitioner.

Many of them have worked as long as 30 years, have spent their lifetime on this particular job.

Many of them are not employable elsewhere and this small sum of money represents to many the savings that they may have accumulated over 30 years of employment with the petitioner.

Now, it is apparent that the provisions granting these priorities to wage earners are the result of considerations of social policy by the Congress and has been enunciated in several of the cases.

And it’s our contention that the Court should give special consideration to the congressional policies intended by this statutory enactment.

Now, we must consider the impact of the order and judgment appealed from below.

We have 174 families affected directly and adversely.

Some of these claims total, some odd $2000.

Some $1500.

These people have not received that money since the debtor has filed its petition on October 18th, 1954, some 15 or 16 months ago.

Now, if the petition is amended to a Chapter XI, it is without question established from experience that a Chapter X proceeding would take a considerable time in the appointment of a trustee, his attorney in going on to examine all the books.

We might then have a situation where this would continue for an even greater period of time that we have had today.

And it is our contention therefore, that since no other creditor seeks the reversal or rather seeks the change from XI to X that the judgment below should be reversed and should be permitted to stay in Chapter XI.

Thank you.

Earl Warren:

Mr. Singer.

Leon Singer:

May it please the Court.

I represent the official Creditors Committee.

The creditors in this case comprise in the main three groups.

One merchandise and service creditors, the second group, the former employees that Mr. Goldweber mentioned.

And the third group, landlords on rejected leases.

Leon Singer:

Now, we’ve joined even though, we’re normally, we are a respondent in the prayer of the debtor for a reversal of the judgment below.

Hugo L. Black:

Which one of those three groups, did you say you represented?

Leon Singer:

We represent all, as the official Creditors Committee.

Hugo L. Black:

You represent all?

Leon Singer:

We represent all —

Hugo L. Black:

Including — including the wage earners, too?

Leon Singer:

— including the wage earners —

Hugo L. Black:

You represent —

Leon Singer:

— on their unsecured claims.

Now, the creditors in this case feel that the decisions below are oddly irreconcilable with fundamental principle of bankruptcy in corporate law.

And that is of the rights of stockholders whether of a close corporation or whether of a corporation whose stock is publicly owned is always subordinate to the rights of creditors.

Throughout the decisions below, it would seem that the courts were more concerned with the protection of the stockholders than the protection of the creditors.

Now, any plan whether it’s one of reorganization under a Chapter X or whether it’s one of arrangement under Chapter XI, must we submit these in the best interest of creditors.

And the creditors in this case believe that their interest would be best served if these proceedings continue in Chapter XI.

And it shall be my burden to demonstrate that point.

Now, simply to hold that a large corporation whose stock is publicly owned may not avail itself of the privilege of obtaining an extension of payment or for that matter a composition of its debts does violence to the very intent and purpose of Chapter XI which concededly was to permit an adjustment of unsecured debts with a minimum of delay and a minimum of expense.

Otherwise, it would seem, if it may please the Court, would be tantamount to forcing such a corporation to a choice between an involved Chapter X proceeding or liquidation and straight bankruptcy, notwithstanding, that there may not be present either a need or a desire or a possibility of reorganization.

Now, the effect of the decisions below, if I may suggest to Your Honors, would require a large listed corporation with stock publicly owned whose assets, and if I may paraphrase the standards suggested by Judge Frank below, whose assets are in excess of a million dollars, perfectly solvent, otherwise, and as to which there isn’t the faintest suspicion of the conduct of management and which for example desired and required an extension of its bank obligations or which may desire or require, let us say, a composition or adjustment of damage claims which may have arisen out of an action on anticipatory breach of contract where the corporation concededly receive no benefit.

And even though that that class of creditors, a majority, may have indicated a willingness to extend credit to such a corporation.

If the decision below stands, that corporation must go through the involved cumbersome expensive procedures of a Chapter X.

I don’t believe this Court intended that in the Realty case and certainly, there’s nothing in the statute which says it.

Hugo L. Black:

If it wouldn’t disturb you, I — I understand the claim of the wage earners, the term here as to why the creditors would be injured by the taking away their lead.

What is the basis for your statement that their other creditors would be injured?

Leon Singer:

That is the point I’m now arriving at, Judge Black.

Hugo L. Black:

I understand.

Leon Singer:

This record discloses that the liquid assets of this debtor, presently, are insufficient to pay unsecured creditors to the full extent of their claims.

That is in the record and it became apparent to the Creditors Committee.

And the Creditors Committee indicated a willingness to accept less than a hundred cents on the dollar.

Now, if we are forced into a Chapter X proceeding where the fair and equitable rule is a requisite (Inaudible) obvious.

We’re forced either with liquidation or the acceptance, perhaps, of some form of preferred stock or a long deferred payment of these debts and I haven’t any hesitance in saying to this Court, I feel that neither a plan which will give to unsecured creditors preferred stock in this corporation, on which will require them to wait years and years for payment of their debts will receive the required two-thirds necessary in a Chapter X.

Felix Frankfurter:

Why wouldn’t the term which you — which has now been offered which the creditors are accepting under the Chapter XI, be terms available under Chapter X because of fair and equitable would be a part?

Leon Singer:

I — I feel that is so.

Certainly, —

Felix Frankfurter:

Neither proportions (Voice Overlap) —

Leon Singer:

The proportions, they would have to be so — as Judge Stone say, “You have to eliminate the stockholders to apply the fair and equitable rule in a Chapter X proceeding.”

Now, —

Felix Frankfurter:

There may have to be a risk involved.

Leon Singer:

That is a risk.

Felix Frankfurter:

That the policy would be ready.

Leon Singer:

Definitely, so.

Now, I think there’s another great risk.

The — there is a very substantial (Inaudible) in this case which is subjected to parole.

And that is the stock of the two subsidiaries.

There is an equity of $2,000,000 in those subsidiaries.

But there is still unpaid approximately $2,000,000 of the original purchase for them.

And that stock is held by a trustee and there is a record foreclosure of that security if we’re going to a X.

I say there’s a threatened foreclosure because the trustee has specifically waived the right to foreclose pending termination of these proceedings with the hope that we’d be able to work something else in arrangement.

Now, the Commission suggests that, well we shouldn’t be bothered by that threat because the District Court has the power to restrain such a foreclosure.

I agree that the District Court has such power.

But that power rests in discretion.

And there’s no warranty that the discretion would be exercised in favor of a stay.

The Commission also suggests that the trade creditors could voluntarily in a Chapter X proceeding, agree to accept payment of their claims at a discount.

I say that, that’s not so because absent the consent of every single creditor in the Chapter X proceeding, notwithstanding, that the required two-thirds had consented to take less in the Chapter X proceeding under the doctrine of this Court in the case against Los Angeles.

Even though the two-thirds it so agreed, the plan would fall of confirmation.

Now, we justly feel that we will be prejudiced by further delay and further dissipation of the assets in this case and I think that it may have been suggested by a question asked.

I think that had not these interim appeals, this litigation with respect to our right to have remained in Chapter XI intervened, the debtor, by now, would have had its plan of arrangement confirmed in the ordinary course of events.

I should like to — to add one further point.

If as Judge Frank suggests, in his concurring opinion that it’s necessary to establish monetary standards to determine what is a large corporation and what is not a large corporation, it would seem to me that the Circuit Court is suggesting something which Congress, in the first instance, should have put in the Act.

And the very fact that Judge Frank saw it necessary to delineate what standards constitute a large corporation and what do not I think bares out the fallacy of the opinion itself.

Best to force this doubt into a reorganization whereas Judge (Inaudible) points out, there’s nothing to reorganize, can bring about only a liquidation of the debtor to the detriment of its creditors and to the complete elimination of its stockholders who bought for one representing, as Mr. Rosen point out, two-tenths of 1% of the entire capital stock of indicated no desire to reorganize this corporation.

Hugo L. Black:

Did they indicate any desire at all, one way or the other?

Leon Singer:

Well no, sir.

Insofar as this record discloses, this petition was made by Mr. Shlensky in his own right which the statute gives him.

Hugo L. Black:

I understand that.

Leon Singer:

And the Securities and Exchange Commission was required to be notified under the statute upon the making of the motion.

Hugo L. Black:

The question I was asking is related to the statement of that this counsel, would you say they have indicated no desire to have inputted —

Leon Singer:

So far as —

Hugo L. Black:

Have they indicated any of provisions and is being inputted again?

Leon Singer:

Insofar as this has come to our attention Judge, none whatsoever.

Hugo L. Black:

Did the record show how it happened?

Leon Singer:

The record does not show —

Hugo L. Black:

And they have taken no part of any crime?

Leon Singer:

That is correct.

The record shows that other than this particular stockholder, no other stockholder, I’m assuming, in the absence of S.E.C. has taken any part or position in these proceedings.

Felix Frankfurter:

I’d looked at the petitioner here.

And you say this individual name is not applied to and not a representative of it.

Leon Singer:

That is correct, Your Honor.

Earl Warren:

Mr. Reich.

Mr. Timbers.

Williams H. Timbers:

May it please the Court.

Position of the Securities and Exchange Commission here very simply but fundamentally, that the issue before this Court as to whether Chapter X or Chapter XI of the Bankruptcy Act affords the — an adequate remedy for the rehabilitation of this debtor, is to be determined on the basis of the statutory language plus the fundamental principles laid down by this Court in the Realty case which, as we understand and still in controls.

Felix Frankfurter:

May I suggest —

Williams H. Timbers:

So of course — excuse me.

Felix Frankfurter:

— it wouldn’t be plus if whatever construction was difficult except for a language, we can reconstruct the language (Inaudible)

I mean we have to go back to the language whatever that conveys.

Williams H. Timbers:

The language of the statute.

Felix Frankfurter:

Yes.

Williams H. Timbers:

That is correct.

But, of course, with reference to the phrase adequate remedy, Your Honor, is what I referred to.

This Court did give, I think —

Felix Frankfurter:

Now, suppose —

Williams H. Timbers:

— a considerable meaning to that phrase and that decision and we believe that —

Felix Frankfurter:

That is really troubled by the word “plus.”

Williams H. Timbers:

I think your observation is — Your Honor’s observation is quite correct.

Now, as undoubtedly, the Court has become aware in view of the arguments by the three counsels for the petitioner’s side of the case seeking to reverse the courts below, their position in substance is that this case is distinguishable from the Realty case or if the Court doesn’t agree with them on that, the Realty case has been overruled or drastically limited by the 1952 Amendments of the Bankruptcy Act.

On our side of the case, that is on the respondent side, we both agree that the judgment below should be affirmed.

The Commission, on the grounds that I have just stated, the right representing Mr. Shlensky, supports us except that he would put it on the basis of the appropriate exercise of discretion by the District Court.

We shall have a word to say on that in a moment.

Now, if I may first answer or try to answer Justice Black’s question while it is still fresh in mind what to, have asked counsel, spoke to whether there are any stockholders or any stockholder interest as it has expressed itself either against the plan or in favor of the plan other than Mr. Shlensky, may I respectfully point out that under Chapter XI, by virtue of its very terms and in view of its basic function, stockholders have no opportunity to be heard, to be notified, and brought that may appear in the record, know nothing about these proceedings.

It is true that Judge Clark in the majority opinion in the court below made this statement and I assume, let’s say, finding was supported by the record that — that the stockholder seemed to be generally opposed to this plan and were worried as to the ultimate outcome of their equity and interest.

Now, to be perfectly frank with the Court, I know nothing in the record to support that other than Mr. Shlensky’s petition in the position that he has taken in this Court, or has taken in the court below.

But that was a consideration in any event taken into account by the court below.

Felix Frankfurter:

How do we take judicial notice (Inaudible) as a matter of fact stockholders (Inaudible) is very often is a representative action?

Williams H. Timbers:

I think that is probably so, Your Honor.

And if I’m not incorrect, the courts have held that once a stockholder like this brings such a suit know not tasked in the usual representative capacity form that he would not be permitted to discontinue with or withdraw it.

It could not be brought off on the theory that he does represent the stockholders as a class.

So, I think Your Honor is quite correct.

Now, the petitioner’s argument to this Court, with respect to the Realty case, breaks down in two ways.

First, that it’s not applicable because the facts differ.

Sure, it differs, we don’t have two identical cases but the controlling principles are the same because of this fundamental fact that, I submit, we simply cannot get away from.

That is, that this debtor General Stores like U.S. Realty, has a substantial public investor interest which needs protection, cannot get it under Chapter XI but only under Chapter X.

And therefore, the language of the statute, the adequate remedy that is required is available only under Chapter X and not under Chapter XI.

Have in mind here, we have 7000 public stockholders.

That happens to be the same number that we had in the U.S. Realty case.

The stock is actively traded on the American Stock Exchange which is, in and of itself, is an indicium of a substantial public interest.

Furthermore, it is a company that has had a checkered financial history, using the words of the court below.

It had its ups and down and by virtue of the fact that it now has invoked the rehabilitation powers of the Bankruptcy Act.

I would respectfully submit to the Court that that alone indicates that there has been a sufficient deterioration in its position, financial position to be of concern and deep concern to the public security holders.

Now, the Court may very well inquire but we don’t regard their regarded difference and observe a difference between the character of the public investor interest in the Realty case as distinguished from this case.

I think that was implicit in Mr. Justice Frankfurter’s question earlier.

Williams H. Timbers:

There is a difference in the character of that interest because in the Realty case, there were public debenture holders, public creditors.

But that was not the controlling fact nor the decisive factor upon which this Court decided the Realty case.

This Court was most articulate in spelling out and we don’t propose to re-plead or ask this Court even to reconsider those factors, which in the aggregate constitute this public investor interest.

Felix Frankfurter:

But it couldn’t in the big and small public or private only that it’s come out of in the fourth company between the other venues of Chapter XI (Inaudible)

Williams H. Timbers:

I think this should be said, Your Honor.

And incidentally, I think the — perhaps the accurate or true meaning of the Realty decision provide our differences here may be pointed up by Justice Robert’s dissent where he very sharply criticized the majority of this Court for setting up a criteria whereby large corporations could not go into Chapter XI actually resort to Chapter X.

Felix Frankfurter:

But would it be in respect of —

Williams H. Timbers:

And that was rejected by this Court in Realty.

Felix Frankfurter:

Put it here in active (Inaudible) involved the public corporations and necessary to go under its hem instead of going to — would that be a good handle for that case?

Williams H. Timbers:

I think that is, perhaps, the most important single criterion, Mr. Justice Frankfurter.

I would say this.

That where you’ve got a large corporation, large public corporation, by that, I assume, you mean with a large number of public security holders that in 90 — 95% of the cases, Chapter XI does not afford an adequate remedy.

I — we can conceive of cases where there might be a — a large number of public security holders where the question would be a little closer.

For example, if all of the stock were underwater and there was no present equity in favor of the stockholders and you had only stockholders, you certainly would have to reexamine a little bit more carefully to see whether the substantial public investor interest there justified resort to Chapter X.

I would submit that even there, it would be important to look at the financial history of the company and to determine whether the — there was a fair prospect that the stockholders though, having no present equity, might as a result of the thorough reorganization possible under Chapter X, might very well come out with some interest.

As indeed, has been done in numerous cases.

Hugo L. Black:

May I ask you a question to see if I understand you correctly.

I’m not sure of this.

Williams H. Timbers:

Yes, sir.

Hugo L. Black:

Suppose in this proceeding where a question was raised as to which one it should come on the X or XI, the evidence shows beyond dispute, that it finally shows beyond dispute, that under XI proceedings all creditors would be paid in full, secured and unsecured.

Whether if it was drawn into XI proceeding whatever the charge of the — of going — going into X proceeding, the extension or something else in connection with the X proceeding would (Inaudible) so that the creditors would not be paid in full.

If such a finding were made that’s supported by evidence, the one that was challenged.

What would be, if you were arguing that under the former case it would have to go through a X?

Williams H. Timbers:

I would like to answer your question, Justice, specifically and directly as I can, Your Honor.

Did I correctly understand you’d assumed the same facts of this case insofar as —

Hugo L. Black:

I don’t know about this case.

I —

Williams H. Timbers:

No, I mean insofar as the size and number of stockholders —

Hugo L. Black:

Without regard to the size.

Take any size you please, any number of stockholders, if you please.

Hugo L. Black:

You have a challenge and evidence was heard.

The Court finds that under the XI proceeding, the creditors will be paid 100 cents on the dollar.

It’s beyond any shadow of a doubt, that finding is supported by evidence.

And that if you move into a X proceeding, the expenses or either a part of it, sold there, the creditors will not be paid in full.

Cannot, possibly, be paid in full.

Under those circumstances, it is your argument that it was the — the law requires, that it’s, nevertheless, going to a X proceeding, under our United States Realty case?

Williams H. Timbers:

I’d like to answer this way, if I may, Mr. Justice Black.

My short answer is yes.

But I think that your — the Court is entitled to an explanation.

And I think the explanation should be very clearly this.

That it would be impossible in a Chapter XI proceeding to make the finding or determination that Your Honor’s question supposes.

Namely, excessive cost, perhaps, standard delay in time in Chapter X.

For this reason that you can’t have a plan, you can’t determine the extent of — of time, money to be expended nor the adequacy of the relief needed under Chapter X until after the petition’s been filed, approved, trustee appointed and the machinery put into operation to bring the plan into effect.

Hugo L. Black:

How was it found here?

The fact, of course, and whatever facts were found?

Williams H. Timbers:

Well, there are no facts in this record that I know of.

And the counsel will correct me if I’m wrong as to any comparative cost or expenses in — as between Chapters XI and X.

And I should say, Your Honor, because it is one of those (Inaudible) around rather loosely and we find it in the briefs here repeated over and over again.

That one of the big troubles that Chapter X is it’s expensive, cumbersome, time consuming, and — and surely as they say will result in the dissipation — further dissipation of the assets of the company.

That is not necessarily so.

And it has been the experience of this Commission under our — in our functions under Chapter X for some 16 years now.

I guess it is 15 or 16 years now, I guess it is, 15 or 16 years, that reorganizations can be had under Chapter X relatively quickly in as short a space of time as six months.

They are not necessarily expensive.

And in any — in any event —

Hugo L. Black:

That’s — that’s answered by saying that no such finding could be possibly be made.

Williams H. Timbers:

No such finding can possibly be made nor was made here and the —

Hugo L. Black:

Well, assuming that it could just for a moment.

Williams H. Timbers:

Yes.

Hugo L. Black:

I had always to hold that all the bankruptcy if I had anything to do with (Inaudible) as the basic primary decision was permanent to see that the creditors were paid before the stockholders got in, is that right or wrong?

Williams H. Timbers:

That is certainly true in — under Chapter X —

Hugo L. Black:

Under any proceeding?

Williams H. Timbers:

It is also true under Chapter XI.

Hugo L. Black:

But individual I suppose.

If he owes money that he’s not holding things out.

Williams H. Timbers:

That is true.

Hugo L. Black:

And the same principle is applied to XI to the corporation?

Williams H. Timbers:

That is true.

Now —

Hugo L. Black:

And you don’t think you have any burden here and — and insofar as and I’m asking you because my mind is wholly undecided.

Williams H. Timbers:

Yes, Your Honor.

Hugo L. Black:

You don’t think you have any burden on the basis of that statement that’s representing all the creditors.

They’re claiming that the — either the record shows or they contend that it — it should be permitted to show a company that creditors will be paid off as you let them alone and don’t move into another one.

But they — they won’t be paid off if you move one to the other.

Williams H. Timbers:

No, we respectfully submit, Your Honor, that that is not the controlling determination and even if it were so.

And may I say parenthetically that — that the supposition, Your Honor, mentioned right at the beginning that the creditors would be paid in full, is all that this record shows so far as the terms of the plan concerns.

We’ll see the plan it set forth two pages of the record and it provides for 100% payment of the unsecured creditors, 20% down and 20% over a period of four years.

Now, there has been a suggestion in one of their briefs, the Creditors Committee brief that that plan has been amended and it’s now, that they are only going to get 40%.

There is nothing whatever in the record to support that.

But the controlling consideration, Your Honor, is not whether the secured creditors — the unsecured creditors are going to be paid in full.

The Controlling consideration, I submit, depict me in the light of — the length of the decision of this Court in the Realty case is whether all public and private interests will be protected.

And you may very well have a situation in this case or in any comparable case where the secured creditors may fair very well.

And still greatly jeopardize the interests of other facets of security (Voice Overlap) — including —

Hugo L. Black:

I can — I can understand that, if you put it on that basis.

Williams H. Timbers:

I think that’s the basis of Realty.

Hugo L. Black:

But I can’t understand why — maybe we should as to why we have held anything in that early case that may be original are in class rules, even though the circumstances in fact that the Court can know, that one court will pay the stockholders in full without jeopardize — I mean the — the credit is in full, without jeopardizing the stockholders.

He knows that.

But I can’t understand why — why we should read the statute to say and get under those circumstances that are — it has to go into the (Inaudible)

Williams H. Timbers:

The — the short answer, Your Honor, and I think it’s a conclusive answer is that it is impossible to make that determination in this type of proceeding.

That is a proceeding where petition has been filed in Chapter XI.

It cannot make the comparison between the adequacy of the relief that Chapters X and XI, on the basis of a Chapter XI petition which you’ll see in the record, is a very short simple thing with the plan of arrangement attached.

Williams H. Timbers:

It’s impossible to determine the adequacy of the relief proposed under that type of plan where you got public security holders without employing the machinery of Chapter X.

Now, that is our basic position.

It’s nothing new.

It’s simply a reassertion of the position of this Court in the Realty case.

Felix Frankfurter:

Would you mind — would it take too much of your time.

If it does then (Inaudible) my question?

Could you quickly say and this is your expert knowledge, the proceeding what would happen, just outline politically as in outline, how the proceeding will go forward if this were left to XI, and what would happen if it doesn’t (Inaudible)

Williams H. Timbers:

Now, this is the best of my ability, Your Honor.

The —

Felix Frankfurter:

But you be — you’ll be the judge from an answer to that question and the time it would take (Inaudible) on the argument of your plan?

Williams H. Timbers:

Well, with the caveat that I necessarily will — will paint it in broad brush strokes and the — the risk of leaving out a good deal.

I think the essentials are these.

Under Chapter XI, petition’s been filed.

Normally, creditors are given notice.

Their acceptances are filed.

They can be solicited even before the plan is submitted to the Court.

After a hearing by the Court, the plan, if found to be feasible and in the best interest of creditors, would be confirmed.

Thereafter, distribution will be made and consummated.

Felix Frankfurter:

(Inaudible) the proceeding were meant to of just result.

Williams H. Timbers:

Yes.

That I think —

Felix Frankfurter:

And that you can take whatever means of federal district judge can and after the proceedings to put questions.

Williams H. Timbers:

That is — that is correct.

It’s in effect a projection of the old —

Felix Frankfurter:

(Inaudible)

Williams H. Timbers:

Equity — the common law of composition which was codified in Section 12 of the Bankruptcy Act.

It’s a simple procedure, no question about it.

However, the judge in acting upon it is —

Felix Frankfurter:

I’m not saying this (Inaudible) in upholding this.

He gets an ample opportunity to put in all of the judgment.

Williams H. Timbers:

None, whatsoever.

He has no standing whatsoever in the Court, in the Chapter XI court.

I don’t suppose it would be heard of the court.

He’s only — only right is to intervene the purpose of dismissing or transferring to Chapter X which he did here supported by information.

One of the most important things, may I mention in passing, in respect to this streamline arrangement procedure under Chapter XI is that the Court, in making its determination of whether it’s feasible, whether it’s in the best interest of creditors, makes a determination necessarily base on relatively, poorly informed judgment.

If he has a judgment not supported by the facts or anything like the facts that he would have under Chapter X.

Stanley Reed:

Well, this is the appraisal of the property, isn’t it?

Williams H. Timbers:

There can be an appraisal if necessary.

Stanley Reed:

And if everybody wants them.

Williams H. Timbers:

If it’s asked for the judge in its — in his discretion in that.

Stanley Reed:

And you spoke that in Chapter XI they would look for the benefit of the creditors but then they were protecting denial?

Williams H. Timbers:

That’s right under the —

Stanley Reed:

But — but they could under XI or how I feel can’t be under XI to avoid payments to the creditors in full?

Williams H. Timbers:

Yes.

By the terms of the arrangement they can accept less —

Stanley Reed:

Well, but the stockholders will save something out of it?

Williams H. Timbers:

That is — that is possible.

Stanley Reed:

Within the purpose of XI to give opportunities to reorganize business to protect the investing public into investing in the stock rather than to creditors?

Williams H. Timbers:

No, it is not, Your Honor.

The purpose is it used to enable the debtor by this simple, in effect, the composition between debtor and creditors to satisfy or scale down the unsecured debts but without disturbing either the stock interest or the security.

Stanley Reed:

But it’s to the sum of those stockholders?

Williams H. Timbers:

Not necessarily, Your Honor.

And that —

Stanley Reed:

But that’s the only place he can get anything, is it?

Williams H. Timbers:

No.

It — it is —

Stanley Reed:

If — if there’s not enough assets to pay all the creditors and the stockholders — if — if the corporation can’t pay both of them.

Williams H. Timbers:

Yes.

Stanley Reed:

Then it needs to go into XI, I think.

Williams H. Timbers:

That is right.

Williams H. Timbers:

And, of course, Your Honor’s observation is quite correct that upon the surface, it would appear that and in this type of arrangement proposed here would —

Stanley Reed:

Benefit the stocks.

Williams H. Timbers:

— would benefit the stockholders because they’ll get more than if they’d put — than if the creditors —

Stanley Reed:

Well, I think they knew their business.

They don’t lose — if you don’t lose the management you don’t use — lose the opportunity of investment, development of business and so forth.

Williams H. Timbers:

Those are considerations.

There’s no doubt about it.

The — the real question here is whether those considerations are outweighed by the — the larger interests of public policy which this Court enunciated in the Realty case in which were based upon the legislative history and the language of Chapter X.

Now, those larger interests, Your Honor, and I’m coming back to answer Justice Frankfurter’s question, I shall not forget it.

The larger interests are basically to — to determine what this company needs in order to obtained the adequate relief or adequate remedy which in — in accordance to the language of the Bankruptcy Act.

And it may very well be that what here appears to be good for the stockholders after a thorough going rehabilitation procedure under Chapter X, may turn out to be completely illusory.

As a matter of fact, we’ve had many — many Chapter XI arrangements that have been confirmed, the debtor goes out.

It’s a first aid room, patched job.

They’re back in a year or so under Chapter X.

Then the stockholder’s equity has been dissipated and the net result is extremely prejudicial to the stockholders.

Felix Frankfurter:

Is that what happened in the transition?

Williams H. Timbers:

We don’t know, Your Honor.

It’s been a — there’s been very little time since that arrangement was confirmed.

We’ve endeavored to have been to it, have not been able to get the information.

Earl Warren:

Mr. Timbers, what would be the position of the Wage Claimants under — under number X, Chapter X that is the preferred wage claimants?

Would they have the —

Williams H. Timbers:

Yes.

Earl Warren:

— same status as under XI?

Williams H. Timbers:

That is our position, Your Honor, as I reinstated in our little supplemental brief.

There are priority claimants same as tax payments and despite the — what appears to be the language of Chapter X that takes out — takes out from under them, deprives them of the statutory priority in Section 64.

The — our — our knowledge is based on some experience.

There’s been no Chapter X court has ever deprived the Wage Claimants of these priorities under the discretion available to the District Judge strictly under the six months rule (Inaudible) the rule in the Second Circuit, prior Wage Claimants have universally been accorded their priority.

We know —

Earl Warren:

Is — is it a matter of discretion with the — with the Court in that situation or — or does he have a positive right to the priority?

Williams H. Timbers:

I think it’s a mater of discretion and so far as we know it has been exercised uniformly in favor of the Wage Claimants.

Earl Warren:

But it isn’t a matter of discretion under XI.

He has a positive priority.

Williams H. Timbers:

That is correct.

Earl Warren:

Well, there is a difference then.

Williams H. Timbers:

Yes, there is, as to the priority claimants, as to the priority wage claimants.

May we say this, however, with respect to the central issue before this Court which I’ve tried to state and I hope is — that’s fairly clear.

We do not consider the extent or nature of the wage claims as necessarily controlling, as to whether this case should be in Chapter X or Chapter XI.

Adding however that we are assured that the Wage Claimants will be — will receive just as favorable treatment under Chapter X as under Chapter XI.

Hugo L. Black:

I don’t quite understand that.

Maybe it has nothing to do with it.

But I don’t quite understand how the Court would have the discretion to give priority to one group of creditors over another but the law doesn’t do it.

And if there is to be a purpose, I should think it’s supposed to be fixed by law.

Where did that discretion come about?

William O. Douglas:

What you’re saying was the rule of equity the — the rule of equity practice is somehow (Inaudible)

Williams H. Timbers:

That’s what I tried to say, Mr. Justice Douglas that is the all equity rules sometime —

William O. Douglas:

(Inaudible)

Williams H. Timbers:

That’s right.

Sometimes referred to as the six months rule which it uniformly —

Hugo L. Black:

I happen to know.

I think they’re offered as amendment in Congress on that very question.

That under those old rules, the wage earners didn’t sometimes.

And other claimants of that type didn’t get there.

The Court wouldn’t give it to them.

William O. Douglas:

I think that’s very unusual but they —

Williams H. Timbers:

We know no such instance, Your Honor, certainly in a Chapter X proceeding.

Hugo L. Black:

I may be wrong but the amendment I offered may have been reference to another matter.

But as I recall that — that they didn’t usually get it over time on receivership, equity receivership and bankruptcy, regular bankruptcy, I thought was provided.

But how do you get around the fact that here it’s been taken out of XI.

Williams H. Timbers:

The reason for that is —

Hugo L. Black:

I don’t mean to say it shouldn’t be gotten away from but I — I just don’t quite understand how you could do it.

Williams H. Timbers:

The — the reason for that as we understand it, was to permit the — give to the Chapter X court greater flexibility with respect to its handling of a number of different types of claims, one of which was the wage earners claims.

And all I can say is that although that priority has been eliminated under Chapter X, it has never prejudiced the wage earners and I would assume if — if it had, there would have been such pressure brought on Congress that the type of bill Your Honor has spoken, having introduced, would have been introduced.

Hugo L. Black:

I stated it.

I was not sure that I had in that but it was close to that.

I forgot exactly what it was.

Williams H. Timbers:

As a matter of fact these Wage Claimants might very well get more under Chapter X than they would under Chapter XI.

And incidentally, their —

Hugo L. Black:

How?

Williams H. Timbers:

They’d be entitled to — to go back six months instead of the three months period for which they’re claiming priority.

In other words, their general claim — the claim as general creditors would be extended to — to establish their priority for a period of six months rather than three months.

Hugo L. Black:

Within what ranges can a judge exercise his discretion in determining the purpose (Inaudible)

Williams H. Timbers:

I suppose it’s the usual criteria for a — an equity judge exercising his discretion.

And certainly, it has been done in favor of Wage Claimants and has been done uniformly, not only under Chapter X but going back under 77 (b) in the equity receivership cases as well.

I’d like, if I could, in — in a very short compass to cover one point that I don’t think has been covered at all in this point, asked by Justice Reed as to what — why the amendments to the Bankruptcy Act in 1952 and their effect on this issue before this case, Your Honor, before this Court.

Very briefly, the two amendments that are relevant are Section 328 that set is forth, page 29 of the S.E.C.brief that, in effect, codified the procedural rule of the Realty case which gives to the Commission statutory authority to intervene in any Chapter XI proceeding, to move to dismiss or transfer.

I think there’s no question.

I think we’re all agreed that amendment did codify that procedural rule of Realty case.

The other amendment here relevant is —

Stanley Reed:

What is the Section (Inaudible) Section 30 of the bill as to the Section of 328?

Williams H. Timbers:

That is set forth at page —

Stanley Reed:

Well, never mind.

I don’t want to interrupt you.

Page 49 of our brief.

Williams H. Timbers:

49 of the petitioner’s brief, I understand.

Now, perhaps, the more important amendments insofar as our discussion here is concerned, is Section 366 which eliminated the fair and equitable requirement of Chapter XI with respect to arrangements.

Now, the legislative history on that is set forth, is quoted at page 31 of the Commission brief.

We’ll not read it because of the shortage of time but I respectfully suggest to the Court that that I — that legislative history at page 29 of our — page 31 of our brief, should be read in the light of the other — the history of the other amendment at page 29 of our brief.

29 and 31 of the S.E.C.brief.

The net effect is that Congress said and most articulately, I suggest, page 31 of our brief, that in eliminating the fair and equitable requirement of Chapter XI arrangements, they were writing into the statute, the substantive law of this Court in the Realty case, namely, that a Chapter XI arrangement was intended only for the small corporation where there was a close identity of management and stockholder interest.

Judge Clark so stated in his opinion in the Second Circuit, the words that Congress wrote in to the law, the rule of this Court in that case are Judge — Judge Clark’s words.

Felix Frankfurter:

I must say

Williams H. Timbers:

— Now

Felix Frankfurter:

–I must say that to me it seems odd, is they wanted to legislate into (Inaudible) provide that this applies to more corporations which (Inaudible)

Williams H. Timbers:

Of course, we’re confronted with what Congress did, Your Honor.

We — and we have to bring to the Court’s attention —

Felix Frankfurter:

Well I’m not —

Williams H. Timbers:

— as best we can —

Felix Frankfurter:

I’m just certain.

You’re making it hard for me to do this.

Williams H. Timbers:

Well, the argument — the argument, Your Honor, is — is very closely tied to the words — only words that Congress wrote in explaining what it did and in taking —

Felix Frankfurter:

That Congress (Inaudible)

Williams H. Timbers:

Committee of the House.

The — the elimination of Chapter — of the fair and equitable requirement of Chapter XI in a nutshell simply recognized congressional acceptance of the fact this Court had established in the Realty case that Chapter XI was inappropriate for the large corporation with a substantial public investor interest.

And in saying as they did in the committee report that in the light of the Boyd and the (Inaudible) cases, the absolute priority rule cases of this Court it would never be possible to have an arrangement under Chapter XI.

And therefore, they eliminated those — that requirement and expressly stated that it was done for the purpose of squaring the law — squaring the statute for the decision of law of this Court to limit that — the use of that Chapter to the small corporation with close identity between management and stockholder interest.

Felix Frankfurter:

With which report is that?

(Inaudible)

Harold Burton:

Page 29 of —

Williams H. Timbers:

Page —

Felix Frankfurter:

That’s 234.

All right.

Thank you very much.

Williams H. Timbers:

Page 31 I think is the —

Felix Frankfurter:

That’s right.

Williams H. Timbers:

Mr. Justice Frankfurter, under Chapter X, the procedure if I may say is simply by way of summation is considerably more detailed representing a more thorough, complete rehabilitation than under Chapter XI.

I regret that time simply does not permit to step by step, recounting what happens, but may I say so far as issues in this case are concerned, it seems to me the most important things they’re available under Chapter XI to protect this substantial public investor interest which we undoubtedly have here.

And that I don’t think it can be disputed.

But first, the appointment of an independent trustee who will supervise the formulation of a plan and will determine, not in the best interest of management, not in the best interest of the secured creditors but taking into account all of the public and private interests, what is necessary to bring about an appropriate rehabilitation of this in the corporation.

Felix Frankfurter:

On this — is your position the position of the Commission.

In that way you have whatever the big corporation used (Inaudible) or outstanding public utility than an XI may suppose and it’s much broader plan.

Felix Frankfurter:

Is that your position?

Williams H. Timbers:

That is our fundamental position.

May I say, however, Your Honor, that it’s not quite that simple and the concept that I would respectfully urge that this Court adopt and lay down for the guidance of the lower courts is when there is bound to be a substantial public investor interest, one of the indicia which may be the size of the company, assets, liabilities, the number of stockholders, the character of the debt-structured financial history.

They are all facets of the entire overall problem.

Now, this Court is undoubtedly aware of the other cases that are — are pending, not only the possible conflict in the Second Circuit between transition in this case, this same issue is in the Wilcox case in the Sixth Circuit.

There is a lower District Court decision which incidentally as a very enlightening decision, printed as Appendix B to the S.E.C. brief came down since our petition here.

You have, if I may say just in conclusion, a situation where such confusion has arisen amongst the District Courts and indeed amongst the Courts of Appeals.

That we submit that the (Inaudible) graphical map, the Bankruptcy Act has implemented by the excellent trail blaze by the Realty case now needs a replacing with respect to the relatively narrow issue presented to this Court which we submit should be decided on the basis of this Court’s reaffirmation of the rule of the Realty case.

Felix Frankfurter:

I was going to ask you whether the Court point at the public to hold whether it’s too small and I find that the case to which you refer, Judge (Inaudible) 333 under the private (Inaudible)

Williams H. Timbers:

Mr. Justice Frankfurter, I think the short of it is that we — we would not suggest for a moment that this Court sanction a — a rule of numbers and numbers gained by the District Court.

Numbers may be important.

Certainly when there is as many as 7000 as in this case that is almost controlling without any other further considerations.

But we also can conceive of the situation where a hundred stockholders might represent a substantial public investor interest.

Stanley Reed:

Well, is there any — anything in the — the case that’s — that the — this case here that wasn’t what appears more important.

Is there anything except the extension of time pertaining to debts?

Williams H. Timbers:

Oh, yes.

Here, there is — their plan provides for a complete satisfaction, complete discharge of the unsecured claims for 40% of the — at — at the rate of 40%.

They say now —

Stanley Reed:

Well, I must have misunderstood counsel.

I understood them to say that the extension is provided here.

Williams H. Timbers:

Well, the plan is set forth attached to the petition, Your Honor, provided for payment of 100% of the unsecured claims over a period of five years.

So, that would be in effect a — an extension arrangement.

Now, they tell us in their brief and I’m not taking actions to deal outside of the record that they, in view of new cash reserves that have come in, plan has been amended or going to be amended to provide for a 40% acceptance by all unsecured trade creditors and accepted now.

So, I take it that would not be an extension of time arrangement.

Thank you.

Earl Warren:

Mr. Reich.

Is Mr. Reich next?

A. Alan Reich:

Your Honor pleases.

We appear here today on behalf of an individual stockholder who has proceeded pursuant of provision of Section 328 of the Act and has brought on by order to show cause a proceeding, why the petitioner should not show cause, why a proceeding should not be dismissed unless steps are taken to comply with provisions of Chapter X.

This is an individual stockholder and the purpose for that is very simple.

A. Alan Reich:

Proceedings have been initiated.

Our stockholder was unhappy, asked us to make the application.

There was no time, no opportunity to convene of the stockholders and there was no necessity or requirement under the statute that ought to be done.

Since then other stockholders have spoken with us with relation to the matter and have indicated some interest in the matter.

We have heard from no stock — from no stockholder any desire that any proceedings be taken with relation to this matter other than what we have done.

Our stockholder is unhappy.

He was unhappy when the creditors were offered 100 cents.

He is unhappy at this particular time when we are told in the brief that creditors may accept 40%.

He would be very happy if he knew that upon payment of creditors 100 cents on a dollar or 40% on the dollar, his rights would be preserved.

His equities would be protected and that the amount he had invested in stock would be preserved in all respects.

However, he doesn’t feel that.

He doesn’t know at this particular time what will happen.

We do know as has been pointed out by the Court that here is a corporation which has been in business over a number of years.

Then in 77 (b), out of 77 (b), issues corporate stock, issues additional corporate stock and we find ourselves among the stockholders at this particular time.

We find that in 1953, when certainly they must have been feeling the pinch capital deficiency.

They go out and they buy additional structures.

They buy the Stineway Drug Company and they buy this corporation which sells drugs and cosmetics for a total purchase price $4,220,000 of which $800,000 was paid in cash.

Felix Frankfurter:

In your petition, is there any suggestion of an organization of funds or a misconduct?

A. Alan Reich:

No sir.

Felix Frankfurter:

(Inaudible)

A. Alan Reich:

No, sir.

We say that we do not allege that there’s any misconduct on the part of the officers.

We indicate that there is a strong possibility there may be errors in the judgment.

And it’s our feeling at this particular time that is the case.

Hugo L. Black:

Do you raise any issues of fact in your motion to make a X proceedings instead XI?

A. Alan Reich:

No.

The issues, the way we raise sir, are base primarily that as a matter of law, we are entitled to be protected by the safeguards, set for us under Chapter X rather than to be left at the mercies of a combination, and I don’t make an improper combination by use of the word, sir between the Creditors Committee and management.

Felix Frankfurter:

And if — and if the judgment below should be affirmed and this has to go into X, what will go into X would be the plan that is now in its (Inaudible) being XI at the same time, wouldn’t it?

A. Alan Reich:

Yes, sir.

If it went — no, sir.

A. Alan Reich:

May I just withdraw that?

It would — if it went into X, we would have an independent trustee who would in the first instance be submitting a plan and that is one of the distinctions between Chapter XI and Chapter X.

If I may —

Felix Frankfurter:

So far —

A. Alan Reich:

Excuse me, sir.

Felix Frankfurter:

So far as anything that ended in the corporation, there’s nothing in the record that indicate anything else (Inaudible)

A. Alan Reich:

Well, sir we — we don’t know that the corporation would be called upon to submit a plan.

The plan would be submitted by the disinterested trustee.

And if I may go back a moment to a question which Your Honor asked and which I think may have been answered a little incompletely, the book was followed completely but in the practical standpoint, let me tell Your Honors what occurs in a Chapter XI proceeding.

When a Chapter XI proceeding is filed, the major activity occurs outside of the courts.

A meeting will generally be called by the counsel for the debtor or possibly a counsel for a group of creditors.

At that time those creditors who were invited, and there is no statutory requirement, that you invite more than a handful.

But let us assume all creditors are invited.

They will designate a Creditors Committee.

The Creditors Committee will designate its own accountant.

It will negotiate with the debtor and on the basis of the best possible arrangement they can for the protection of creditors, they will finally come up with a plan based on what the creditors expect to receive and what the debtor can pay.

We say, that under — that arrangement may be for the best interest of creditors but does not necessarily make it for our best interest.

That assuming, for example, that this 40% is paid, that that 40% may so reduce the assets of this debtor as to leave a mere (Inaudible) for stockholders and simply to delay the time, when this illusory existence of ours, of stockholders ceases.

As a matter of fact, the opinion of Judge Clark in referring to the — this situation says in our view, widespread stockholder interest in the corporation with such a shaky financial history as this one in itself, is in itself sufficient ground for the invocation of Chapter X proceedings.

Even the unsecured creditors who are urging the reinstatement of the Chapter XI proceeding petition may come to regret their decision during the interval of postponed payment without interest of their claim for the present proceedings are completely in the control of the debtor corporation on whose financial acumen and bookkeeping accuracy must rest through fairness and feasibility of the proposed arrangement.

Too a greater public interest is here at stake to allow the present management of the debtor to secure court ratification of such a plan without having available to all parties the disinterested appraisal and judgment of the Securities and Exchange Commission.

Felix Frankfurter:

In the Transvision, there was suggestions of — of dubious conducts by the management.

A. Alan Reich:

In the Transvision case in which I was one the respondents, the position was entirely different.

There may have been a suggestion.

There was never where you counsel for the Creditors Committee is of that corporation.

We never had the slightest doubt.

Even though the S.E.C.raised it and we’re on the other side from the S.E.C. in that case.

There was never in our mind and never developed in any of our investigation the slightest doubt.

Felix Frankfurter:

All I know is that I read their opinion.

A. Alan Reich:

Yes, sir.

A. Alan Reich:

I say that with respect to the cases that we have here, the S.E.C., the General Stores and the Transvision cases.

And we must confess that we differ with the S.E.C. on the Transvision decision.

We feel that General Stores followed the U.S. Realty case.

And we say that the Court, in refusing certiorari in Transvision, likewise, followed the U.S. Realty case.

We feel that the matter is in all squares.

Here we have on the S.E.C.case 900,000 shares of stock.

In General Stores, we have 2,232,000 shares of stock.

In the Transvision case, however, we only had a total of 385,000 shares of common stock and 1773.5 shares at $100 apart.

Now, with respect to the distribution in the Realty case as in the General Stores case, there was only a small amount of stock in the hands of the management.

There was only, in this case, 127,000 shares as against the 2,232,Mr. Justice Clark.

In the Transvision case, also, all of the stock was in the hands of management.

It was, in effect, privately held with the exception of 135,000 shares of stock.

Felix Frankfurter:

That may make a small minority holdings more at the risk of the management and it’s through the light of distribution and management hasn’t such a grip.

A. Alan Reich:

Well, sir, we have this particular situation where management itself owns a small block of stock and take this small block of stock and uses it to swing the corporation.

Certainly, there is less possibility of danger with respect to corporation as the courts have pointed out.

Then where a — the management itself has a greater financial risk will be hurt by its own actions with respect to the liabilities.

The liabilities offered from the guaranteed liabilities in the Realty case was $5,051,000 as against roughly $4 million dollars in this case and only $772,000.

The assets in the Realty case were over $7 million.

In this case over $5 million.

In the Transvision case only $998,000.

I believe I have just a few moments.

I’d like if I may go back —

Earl Warren:

You have — you have five minutes.

A. Alan Reich:

Oh, fine.

Earl Warren:

Five minutes more.

A. Alan Reich:

That’s just fine.

The Court, as stated in the Realty case, was given the right, the exercise of discretion.

It was contended the Court had no right in the Realty case to determine whether a matter is properly in X or XI.

And the Court in the Realty case indicated and I quote, “In this situation we think the Court was as free to determine whether the relief reported by Chapter XI was adequate as it would have been if respondent had filed its petition under Chapter X.”

But the Court can decide under 146 of Chapter X as to the adequacy of the relief afforded by Chapter XI.

A. Alan Reich:

They can decide in the exercise of its equity powers under Chapter XI for the purpose of safeguarding the public and private interest involved and protecting its own jurisdiction from misuse.

Felix Frankfurter:

In other words — in other words, what you’ve read are two more sentences goes before and after —

A. Alan Reich:

That’s right.

Felix Frankfurter:

— to prove that it is the majority of the Court to see.

It is deemed to be an exercise and that’s going to be discretion.

A. Alan Reich:

That’s right, sir.

Felix Frankfurter:

And now the jurisdiction is exclusive.

A. Alan Reich:

Well, they — yes, that’s correct.We contend that the standards set for jurisdiction have been set forth very clearly and concisely under the Realty decision.

We claim, however, that no hard and fast form has been made into which they have to fit.

That is discretionary in the lower court after hearing all of the facts to determine whether or not, within the patterns set forth in the Realty case, this particular case is discretionary.

Felix Frankfurter:

That is my understanding what the Realty case was.

A. Alan Reich:

That’s right, sir.

Now, with respect, however, to the debtors argument that the amendment in 1952 of 328 and 366, the — the House Report specifically states to what was intended for the purpose of codifying the decision in the Realty case.

And it does exactly that.

Either that or the language that’s used is merely self surplusage.

So far as the plan itself is concerned, we would certainly have been guilty of — if the contention of the appellees here that we are bound to look solely at the plan.

And that the factors determine the size and the other standards do not apply were it to apply here, we’d be guilty of latches if we attempted to proceed in XI for this reason.

Under Chapter XI, the Congress, in its wisdom, has decided that a plan of arrangement must be filed with the petition.

Well, we have found very often with debtor in filing the petition has got the marshal or sheriff right behind them and he rushes down the Court just fast enough.

So that the plan may be modified.

And we have modified plans of arrangement, the second modified plan, and we have one in this particular case.

You have a modified plan.

And then maybe a second and a third plan.

So that we would never have an opportunity to come in.

We feel, sir, that the standards have been set by the Court in the Realty case.

That they have been codified by the Court, by the amendments through 328 and 366.

That to state that the Court based it solely on the fair and equitable rule prevents a misreading, in my judgment, of the provisions of the Realty case.

And under the circumstances, in view of the fact — the facts seem to be and all aligns with the Realty case, we ask that the decisions below be affirmed.

Felix Frankfurter:

Mr. Reich —

A. Alan Reich:

Yes, sir.

Felix Frankfurter:

— we control of that.

If I may sense more accurately, the decision was the Realty upholds.

I’m going to ask you if I read the record now that I have the report in front of you.

A. Alan Reich:

Right, sir.

Felix Frankfurter:

What the amendment of 52 gives as well as to — to try again by pointing that (Inaudible) from XI to X —

A. Alan Reich:

That’s right.

Felix Frankfurter:

— that you’re drawing out and you have to start all over again with all the difficulty that the X transferred from X to XI.

And you refill that gap by allowing to transfer instead of a dismissal whether you will be good.

A. Alan Reich:

That’s exactly right.

Now —

A. Alan Reich:

And in addition to that, of course, you would have had the expiration statutes of limitation.

Felix Frankfurter:

That’s what I assume, is in fact the decision.

A. Alan Reich:

Of course, it was the decision.

Earl Warren:

Oh, yes.

Justice Black —

Hugo L. Black:

I’d like to ask you —

A. Alan Reich:

Yes, sir.

Hugo L. Black:

I see the motion to dismiss was made by the Securities and Exchange Commission and their ground was, seemingly, the only ground, provisions of Chapter XI do not apply to a debtor corporation which has securities outstanding in the hands of the public.

Now, I understand it from you that — that I misunderstood you.

That that is not your ground.

A. Alan Reich:

Mr. Justice Black, we don’t go as far as the Securities and Exchange Commission if the intention of the S.E.C. is to state that if there are any securities publicly held, if that is their position that any securities, we say no.

We say this Court was correct in the Transvision case.

That you must apply that as one of the standards that must be applied.

I say it is not conclusive that merely because there was $10,000 or $50,000 or $100,000 in securities in the hands of the public, that in my humble judgment is not sufficient.

Hugo L. Black:

Now —

A. Alan Reich:

But I say that, sir, together with the other aspects, spells out a case with Chapter X.

Hugo L. Black:

In your petition, you’ve said, you transfer —

A. Alan Reich:

Yes, sir.

Hugo L. Black:

— you allege that it will be for the best interest of the stockholders that the trustee be appointed pursuant to the provisions of Chapter X —

A. Alan Reich:

Yes, sir.

Hugo L. Black:

— it will solve.

A. Alan Reich:

Yes, sir.

Hugo L. Black:

That was on the basis that there’s some discretionary power on the part of the jury.

A. Alan Reich:

Well, there would be more than discretionary power on the part —

Hugo L. Black:

(Voice Overlap) —

A. Alan Reich:

— the Court would be mandated to a point in the sense that —

Hugo L. Black:

And if — if it is to their best interest.

And your idea is that the judge held, as it seems to me probably, he did here.

That it was for the best interest of all, both stockholders and creditors —

A. Alan Reich:

That’s right.

Hugo L. Black:

— that you have alleged that the matter be transferred.

A. Alan Reich:

The Court —

Hugo L. Black:

Was there — was there any offer to put on anymore evidence than —

A. Alan Reich:

No.

Hugo L. Black:

— was put on?

A. Alan Reich:

No.

Judge Dimock — Judge Dimock in his opinion found — excuse me.

That — this question — counsel, may I finish —

Hugo L. Black:

The opinion —

A. Alan Reich:

No.

Judge Dimock in his opinion based on the papers and based on the law, the grant that we made the original application, sir.

And the S.E.C. moved to intervene and also holds for answer, a similar petition to dismiss and the motion of the S.E.C. was granted.

I would understand that Judge Dimock exercised the — the discretion in determining that we come within the confines of the Realty case and have presented sufficient facts which shows that the matter is properly in Chapter X with its investigatory powers rather than under Chapter XI.

Hugo L. Black:

As I read his opinion at one face, I don’t have to suggest this moment he made a statement that —

A. Alan Reich:

And —

Hugo L. Black:

— do you believe it was in the best interest of the stockholders and the creditors that the matter be transferred.

A. Alan Reich:

I think it could well be.

As a matter of fact, the Circuit Court, sir, in the part of the opinion of Judge Clark that I read from, indicated very clearly that the creditors may well regret this extension.

Apparently, the Creditors Committee regretted it before the conclusion and made a new deal.

Hugo L. Black:

All right.

Hugo L. Black:

Thank you.

A. Alan Reich:

Thank you, sir.

Earl Warren:

Mr. Rosen.

Aaron Rosen:

(Inaudible)

Earl Warren:

Yes.

Aaron Rosen:

If the Court please.

With the — with respect to certain questions which the Court had, may we point out that a description of the proceeding in Chapter XI is contained in at page 23 of our brief.

In that case we show how extremely wrong it is to make the statement that all the proceedings in Chapter XI are under the control of the debtor.

As a matter of fact, once a debtor files his petition in Chapter XI, the proceeding moves under the control of the Court and the creditors as represented by the Creditors Committee.

Now, we believe that is one of the most important distinctions from the way the case is being argued by the S.E.C.and by the stockholder Shlensky.

In other words, we, representing the debtor, are here between if you like to fire us.

We have the creditors who, as we show in our brief, have real control over this Chapter XI proceeding.

And on the other side, we have the S.E.C.who, regardless of the interest of creditors as expressed by them, regardless of the fact that it can be so easily shown that stockholders get a worse deal in this type of case in Chapter X, nevertheless, move ahead and ask that we go into Chapter X.

The stockholder Shlensky, petitioning in his own behalf, not joined by anybody else and there is nothing in the record that the stockholders are with him.

In fact the record shows just the opposite.

The record shows that the things that Shlensky is unhappy about, the investments in the new enterprises were fully presented to the stockholders with proxy statements which were cleared by the S.E.C.

And then not a small block of management stock voted for it but the stockholders voted four-to-one and there are 7000 stockholders outstanding.

Now, this situation is, that when this motion was made below in the District Court, there were no facts shown.

As they said, they didn’t even suggest wrong doing.

All they said was, “You’re in the wrong chapter because you’re a large stockholder, because it’s a large corporation with publicly held stock and you have — you have invested in this new drugstore group and you’re getting out of the old.

As if a matter of business judgment created for some reason or other, a right in the S.E.C.to transfer the management and control of this company from the management to a trustee.

Now, that’s in effect what they’re trying to do in this case.

Now, with regard to — and I only have time just for the U.S. Realty case.

In regard to the U.S. Realty case, we want to point out that the majority opinion in that case did express itself in terms of large corporation publicly held, what not, to be in Chapter XI.

But the Court by Mr. Justice Stone, did not point out the statute, the basis for such an exclusion.

The Court then went on, and this is what we feel is the important thing about the U.S. Realty.

Then it went on and said at page 452 at 310 U.S., still more important are the differences in the remedies obtainable under the two chapters which result from differences in the nature of the two proceedings and in the securities which may be affected, affected by the two proceedings.

And then Mr. Justice Stone starts quoting the statute and what does he quote?

366, “The standards for the confirmation of a plan and if you can’t confirm a plan, Congress said, the Court has the power to dismiss.”

Now, Mr. Justice Roberts wrote the dissent in that case and expressed himself as unsatisfied with the proposition that a Court in bankruptcy has the equity power to withhold rights which Congress has given to the people.

Aaron Rosen:

And we ask that that matter be seriously reviewed by this Court.

But we don’t believe that this Court came to that conclusion in the U.S. Realty case.

It certainly wasn’t necessary.

And Mr. Justice Stone said in unmistakable language, what was the most important consideration.

He said, what was the basis of his own decision.

Thank you.