Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson – Oral Argument – November 07, 1967

Media for Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson

Audio Transcription for Oral Argument – November 08, 1967 in Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson

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Earl Warren:

[Inaudible]

Irwin L. Langbein:

Mr. Chief Justice and may it please the Court.

This is corporate reorganization case arising under Chapter 10 of the Bankruptcy Act.

It comes here from the Fifth Circuit and originated in the Southern District of Florida where the company under reorganization has its home port and principal office.

It’s in the business of supplying ocean shipping service of a specialized nature.

It falls well or highway rather trailers overseas, the maritime equivalent of railroad fleet.

The petitioner Protective Committee consists of a small group of small stockholders who hold authorizations from like stockholders, but they have attempted throughout 10 years in three reorganization plans involved here to discharge their responsibility to the whole group of public stockholders and not insofar as the record shows to over 7000 stockholders who hold over one million eight hundred thousand shares of stock which was sold to them in an original flotation or a series of flotations of stock of this company at prices up to $4.5 and $5 a share in a rig market for the most part in violation of the 1933 Securities Act, so far as registration is concerned and also in violation of various fraud provisions that would be applicable under both of 1933 and 1934 Act.

The protective committee seeks to set aside this plan of reorganization, the third as I said which excluded the stockholders from participation in the reorganized company.

They say that this reorganization is a rehearsal of the classic pattern of the reorganization scandals of generation ago that resulted in Chapter 10.

Scattered innocent security holders are excluded from the reorganization which has been dominated we say by the people who wreck the old company and notwithstanding charges of mismanagement and fraud against them, they come out either with priorities or with control of the company.

We served as Brown’s proportion not a long Trail Court errors of law particularly in the area of Valuation Law and Securities Law but that there is a pervading failure on the part of both courts below to hold the trustee who in Chapter 10 is the key to a fair and honest reorganization to the performance of the statutory duties.

We say that he performed belated and inadequate investigations particularly of charges of fraud against the people who ran the company and come out on top.

We say that he made some errors of securities law which Mr. Ferber for the SEC proposed to discuss a little bit later, but we say that basically what was wrong was that both courts refused to hold the trustee to his duties of investigation, particularly of frauds of disclosure, particularly of compromises with people charged with fraud and in one instance established so far as the trustee himself is concerned by an investigation which he had made, which came up for the demonstration of fraud to his satisfaction on the basis of which he recommended for example that under the Taylor Triborough Doctrine those people should go to the bottom of the reorganization, but they came out on top.

And we say that he failed to disclose the basis of his comprises with and after they had been charged with fraud which had never been recorded.

He failed to bring into the record various facts which are of importance on valuation.

He fudged we say, some of the valuation facts which were in the record and most important of all he failed in his basic duty for which the statute imposed upon him of independence.

He had a fiduciary duty under the statute to stay it on the length with all the people in the reorganization and instead he entered into alliances with them.

For example the largest single creditor whose case I shall discuss in a moment turned up on the Board of Directors with him and he himself on the Board of Directors, a fact which the SEC proposes to argue as having special significance.

And we say that he had a duty to accept no favors at the hands of the people with whom he was required to deal and with whom he made these compromises.

We say he violated these — his duty by accepting his position as President of the new company at the hands of people charged with fraud and also at the hands of people who were discount claim buyers who were interested in patronage and they too sit on the Board with him now.

Sir, this is the third time that the case has been up to the Court of Appeals and one of our complaints here, the reason that we presented the case under the supervisory power rather than just under conflicts is that we felt that the Court of Appeals has a share of the responsibility for happened here that on the first two appeals, on the first one we raised some of these points that we are now raising, on the second appeal we raised all of them, passed them off, didn’t issue advisory guidance on these points, dismissed them as moot and thereby encouraged the court below to encourage the trustee it his dereliction of duty.

And on the third one its plain from the opinion and the court said this case has been here nine years, as a matter of discretion we might just well let it go that the Court of Appeals is pretty well bored with it and never looked into it and this is why we brought it here as a matter of the supervisory power.

In the first appeal it was our position and it was dismissed as moot.

The second appeal and it was combined with another appeal in which the main question of setting aside the first plan for fraud was brought up on certiorari.

The second appeal, we didn’t bring certiorari although the government on a collateral point that is collateral presentation did.

The third time around we brought certiorari because only then was it then squarely presented.

[Inaudible]

Irwin L. Langbein:

No sir.

Well, I beg your pardon.

It is quite true that certiorari was denied but it was not, it was not our committee who asked for it.

Irwin L. Langbein:

In the first case Mr. Shaffer and Spitzer who filed the brief here filed for certiorari denied, in the second case the custody himself on a collateral question to the government priority rate, filed for certiorari also denied and the third time we brought it here.

William J. Brennan, Jr.:

That was on the tax issue.

Irwin L. Langbein:

Yes the priority, well really the priority of non-tax plan.

William J. Brennan, Jr.:

Yes.

Irwin L. Langbein:

Now, what I think illustrates what happened here and what we complain now first is the treatment of the claim of Merrill-Stevens Dry-dock and Repair Company, which is the shipyard that had the largest single creditor claim in the case.

Merrill-Stevens claimed amount of about $1,600,000.

Most of it was for conversation work on the company’s self propelled vessel called the Carib Queen.

What immediately provoked the reorganization was the fact that the Carib Queen on her maiden voyage to France had a boiler blowup and this crippled the Queen and the crippled the company and led to reorganization.

Of course the validity of that claim just as a matter of a commercial claim was a better subject of dispute.

When a boiler blows up and a vessel is put out of commission, so that the company has to limp along after that has it did during the reorganization with barges only, there is a lot of serious problem involved and this was at first disposed off by the trustee notwithstanding there was evidence that it was not alone the Queen that it had been subject to shoddy workmanship, but another vessel had capsized after having been designed by Merrill-Stevens, still another vessel had been put out of the shipyard with some defect in discharge line, which of course at the swamp and sink and there were all of these shall we say commercial defenses.

The trustee recommended payment in full, after an off the record of investigation.

The Security and Exchange Commission made its own investigation, purely on the question of what I might call a commercial claim.

He came to the conclusion that there were defenses.

They weren’t perfect, but they should either be litigated out for if an appropriate settlement whose dimension that commission wasn’t prepared the state within the week it should be settled out.

We the committee were dissatisfied with that, just as we had been dissatisfied with some earlier refusals of the trustee to investigate.

We obtained leave from the court to investigate and we made a further investigation, as a result of which we turned out charges and we outlined the evidence of fraud by Merrill-Stevens, its largest creditor.

The essence of the fraud, the details I have to skim over consisted of participation in a fraud by other people in the case.

The other people in the case are a group headed by a man named Abrams, a notorious stock swindler who was in Federal prison at the time of this reorganization, although not convicted of any matters involved in this company, a representative of a respectable security house, a man named Shaffer.

The trustee in a belated investigation that wasted three years of this reorganization, the one that resulted in the first certiorari that Mr. Justice Harlan asked me about, had found that Abrams and Shaffer had wrecked this company, that there had been in the pre-reorganization stage a large number of sales of securities, most of them in violation of the Securities Act and fraudulent by virtue of the techniques that I have mentioned.

And furthermore he had found notwithstanding denials by M/s. Shaffer and Spitzer and some of the people associated with them, that Shaffer and Spitzer who came into reorganization posing as innocent mortgagee title holders, actually knew that the beneficial interest in the mortgage that they have and which wound up with the priority were to a large extent owned by Shaffer and by Abrams, Directors of the records of the company but this was hidden.

And this was the crime — this was the matter that it had led to this first plan.

The trustee refused to accept leads that we had offered him showing the connection and it wasn’t until three years later as a result of an independent investigation by the SEC followed by a thorough so far as it went investigation on 167, the statute section that provides for formal investigation, full investigation that these things were discovered and at that time the trustee recommended that Shaffer’s Spitzer should go to the bottom of the heap, that there should be suits pressed against them against the individuals behind them that there should be.

Byron R. White:

On behalf of the company?

Irwin L. Langbein:

On behalf of the company and also the point or one of the points that Mr. Faber proposed to discuss that the individual stockholders who had been defrauded by the company had a position to creditors just as if they have been run down by a company truck or had failed to receive goods.

Byron R. White:

[Inaudible]

Irwin L. Langbein:

He said the company had claims on the individual–

Byron R. White:

As a result if there was recovery the recovery would go into the assets of —

Irwin L. Langbein:

Sure, he recommended the assertion of both sets of claims, the company claim against these people, the stockholder claim against these people and also he recommended that there should be an offset against this innocent appearing mortgage which was on the most crucial assets that the company had and which had been put by these people who wrecked the company.

On these assets, on the eve of bankruptcy for the option to turn them all, again the stock that everything went well and with the stranglehold in case everything worked out to nothing as look to be the case at that time.

Now, essentially what I have said a the Shaffer Spitzer group and it’s first reorganization plan was a digression because my interest in it is to point out to the Court that there were charges of fraud against this group.

Irwin L. Langbein:

And that they had been established by the trustee on the record in the result of an investigation although belatedly.

And we have said also in this further investigation that we had made that the Merrill-Stevens group allied themselves with this, stop pushing in this fraud because they too had connive with management and with the people who are dominating management and it’s financial matters to commit a fraud upon the maritime administration and upon the public.

Again without going into the detail of it because it has never been investigated in fact there happens not to be a formal denial of it on the record.

A portion of the stock portion was achieved in this case by representation as to a maritime commission guarantee on the construction mortgage of the Carib Queen in her reconversion of the company’s use.

The mortgage had been guaranteed by the maritime commission, which made a statutory finding which was much advertised by the stock pushers that the enterprise was economically sound and that guarantee could not have issued nor that representation had been made use of in the sales or not for fraud practices upon the maritime administration by a mortgaging out procedure.

The statue under which the maritime administration operates initially in these loan guarantees requires that a certain fraction of the cost to be paid in cash, it was not.

Although it was paid in cash, there was a hidden under-the-table deal whereby the cash would return right back to the company in exchange for company stock at an arbitrary price.

The company was at the time putting stock down on the markets who, the hands of its friends and people who controlled it for all sorts of prices and for nothing.

So this was way in which we said that there had been a fraud on the part of this major creditor.

Now with respect to both these creditors the mortgagee group and the trustee had found guilty of fraud and the shipyard when we had alleged in detail although there had been no formal investigation was guilty of fraud nothing happened so far as the trustee was concerned by way of action on that fraud.

Indeed at one point in support of our charges of fraud against Merrill-Stevens we attempted to bring into the record by ordinary discovery procedures, motion to produce and so on some documents bearing on it which we described after we located them that the trustee said he didn’t know anything about it, he hadn’t found them and the trustee opposed our attempt to obtain them by ordinary discovery procedures.

Abe Fortas:

Mr. Langbein, how is the state point which you are asking this Court to decide?

Irwin L. Langbein:

I would like the Court to rule as follows.

Abe Fortas:

Yeah go ahead.

Irwin L. Langbein:

First that a reorganization conducted by a trustee in disregard of his responsibilities to investigate and his responsibilities to disclose results in a reorganization plan which has to be set aside because the trustee’s functions under the statute are too important to trifle with.

Abe Fortas:

Well I see there is no dispute as to that proposition of law.

The question is how to try in this case?

Is there any dispute as to that proposition of law?

Irwin L. Langbein:

I think there is some bickering about it in the briefs.

Abe Fortas:

Alright.

Irwin L. Langbein:

I regard it as myself substantially settled because I can find the counsel has not been able to cite any cases to the contrary.

Next we would like to have the Court rule on the disqualifications of the trustee through making alliances with people whom he ought to kept at arm’s length and because Section 221(5) of the Act requires that as a precondition of confirming a plan that the Court must take a look back over what’s happened in the reorganization and satisfy itself of the independence of the trustee that the plan is bad if the trustee isn’t independent.

Abe Fortas:

I thought you also relied on the fact on [Inaudible] mentioning with that trustee [Inaudible]

Irwin L. Langbein:

Yeah.

Abe Fortas:

That trustee became the president on the of the reorganized company?

Irwin L. Langbein:

Yes and the SEC was running this on the ground of prophylactic rule that no matter of what the facts the trustee has no business being president of the company, the way there has been a disputed reorganization plan, we say that while we agree with that position perhaps because we are closer to the facts.

We don’t have this magisterial view that the SEC has that on the particular facts the trustee disqualified himself because he made alliances with the people that he was supposed to create fiduciary in fashion and not make alliances with them, not get any conflict of interest.

Abe Fortas:

[Inaudible]

[Inaudible]

Irwin L. Langbein:

One contention was ruled on against us by the Court of Appeals.

Irwin L. Langbein:

This is what I call a prophylactic rule.

The Court of Appeals expressly left open the question of whether a lack of independence in fact was available to us.

It said that if we prove that it was in — that he didn’t have independence in fact that at that point we would have a bad point.

I think this is —

Abe Fortas:

We are asked to look at the record here and determine that the trustee was derelict in his fiduciary duty in the respect which you have been discussing and on that basis to confirm that the reorganization plans should be set aside?

Irwin L. Langbein:

Yes well, there are other grounds that I’ll come to in a moment Mr. Justice.

We are asking you to look at the record.

We have summarized the record and while there is dispute I think on some of the fringes of the fact, there is no dispute I think as to the main fact here, although I was somewhat surprised by, in the reply briefs and kind of a general denial and —

Abe Fortas:

Kind of a [Inaudible]

Irwin L. Langbein:

Well it’s vigorously general sir.

William J. Brennan, Jr.:

On which line I gather that we should agree with the SEC that it should be a prophylactic rule [Inaudible]

Irwin L. Langbein:

Yes sir, I think so, but there are lot of things that need diagnose here and -–

William J. Brennan, Jr.:

Well I – but suppose there was a conclusion that a prophylactic in the these circumstances is indicative?

Irwin L. Langbein:

Yes.

William J. Brennan, Jr.:

That will be a general application, would that have the affect to setting aside this plan?

Irwin L. Langbein:

We think so.

William J. Brennan, Jr.:

Well if it did then why should we be concerning with all the other things?

Irwin L. Langbein:

Well there are multiple grounds upon which we advance this case.

One ground I haven’t even mentioned except as a rubric the fact the district court announced and allowed the application of what we consider to be a rule of valuation law that is utterly contrary to every case that this Court has had on the subject.

William J. Brennan, Jr.:

On this issues that you are speaking that you’ve addressed yourself so far?

Irwin L. Langbein:

Yes Your Honor.

William J. Brennan, Jr.:

Necessarily to be getting into the record and all these matters and in fact the proper rule of law is a prophylactic rule?

Irwin L. Langbein:

If you can disclose it short by the prophylactic rule and if it follows from that as we say that the plan itself is bad if the trustee is independent then the plan goes back, but what I am afraid of, very much afraid of in view of the history of what happens when there is no affiliate guidance in this case that we are in for more of the same.

We’ve had 10 years of this litigation.

Byron R. White:

Well it seems to me that the only prophylactic rule is urging that the trustee is not going to be trustee of the company and that’s been set aside plan that [Inaudible] president of the company but it’s otherwise make the plan exactly as it was?

Irwin L. Langbein:

No Your Honor we insist that the trustees’ conflict of interest.

Byron R. White:

I know you do but it’s the only that’s wrong with the plan, is that the trustee is the president of the company, where you can get a new President of the company.

Irwin L. Langbein:

Now we say that there are other things wrong with the plan.

Byron R. White:

Exactly that’s the answer to this, that’s just credit isn’t it, but there are other things wrong with this plan that must be cured.

You say that trustee would not only become president of the company but in the process of compromising certain claims that there wasn’t enough done to later comprise on and that the Court had also in approving the compromise.

Irwin L. Langbein:

Right, sir.

So that I think if you would nearly disposed off the thing on the basis of a finding that the trustee shouldn’t become president, that wouldn’t answer case.

It’s our view that what the trustee did on the way to becoming president compromised the whole record, made it impossible for one to make a fair determination as for example the facts that he put into the record on valuation.

Byron R. White:

I don’t know why — did you ever object to, did you client ever object to trustee being president [Inaudible]

Irwin L. Langbein:

Oh!

Yes we did sir.

Not on the first plan, although he was President in the first plan too, but in the second plan and in the third plan we objected and in the proceedings below we objected.

Byron R. White:

There are proceedings available in reorganization [Inaudible] trustee on that?

Irwin L. Langbein:

It happens that that there are no precedents on the subject and I need —

Byron R. White:

[Inaudible]

Irwin L. Langbein:

I am certain that there are procedures available although the statute doesn’t spell them out –

Byron R. White:

Nobody trust, nobody trust [Inaudible]

Irwin L. Langbein:

It would be too outrageous if one didn’t have that, but we did not make any attempt to remove the trustee by an independent procedure.

The reason for it is that there is a claim remedy available for an non-independent trustee knock out the plan and as a core committee we even had to have the court under the old rules weigh depending on the record, we couldn’t afford to go up on every side skirmish.

Most of the trustee’s lack of independence was built up during the proceedings that lasted very few months in the formulation of the second plan.

It was at that time that we began to realize that the trustee was withholding evidence from the record, that the trustee was making alliances with people with whom we thought he shouldn’t make alliances that he was granting sweetheart contracts for example to one of these claim buyer that cost the company a $100,000 a year over the nearest competitive bid that he was running off people majors in the industry I am talking about the towing contract, majors in the industry whom we brought in and whom he refused to allow to have information that he was running off bidders whom we proposed to bring in because he wouldn’t give them information that he was rejecting a cash plan which was offered by an alternative bidder whom we didn’t bring in to the case.

[Inaudible]

Irwin L. Langbein:

Yes sir they are.

[Inaudible]

Irwin L. Langbein:

To the extent that they are un-denied we –-

[Inaudible]

Irwin L. Langbein:

Not solely Your Honor, to the extent that they are un-denied in the record.

This is not the kind of a case that the Court doesn’t go into such as resolving disputes of fact that have been resolved by the judge.

But I think the mere fact that somebody in a brief says that where we say we charge fraud against Merrill-Stevens and one of the answering brief says no, they never charged fraud against Merrill-Stevens, that’s merely cited on the brief, shouldn’t preclude the Court from what is unpleasant and difficult duty most of which probably does get turned over to the Courts, going to the record and finding out whether what we say is so.

This occurs anytime that there is a fundamental miscarriage of Trial Court justice.

[Inaudible]

Irwin L. Langbein:

Yes I think we can sir.

We think that this was a primary duty of the Court of Appeals that when we said these very things to the Court of Appeals with chapter and verse citation to this record that it was the Court of Appeals’ duty not to flip this off as it did saying well this is a matter of discretion.

But when we say that the record is poisoned, they may have taken a look at the record, but what they did was to say that this is a matter of discretion and when we said that the trustee derelictions of duty were compounded by errors of law on the part of the Trial Court, for example in enunciating a wrong rule of evaluation law and when we say that the trustee prevented us from having a true evaluation of the proper number of claims, that at that point this passes beyond the boundary of discretion.

We are no longer dealing with something, the Court has the evidence before and it ruled as it — as it had the right to rule on disputed questions of fact.

Irwin L. Langbein:

This not discretion.

This is error of law particularly in the area where we say — particularly in the area where we say that the trustee who has the duty of making up a record for the Court distorted the record.

The Court didn’t pass on those issues in fact.

These are very serious charges.

They go the essence of bankruptcy as —

Byron R. White:

Why do you on the claims, why do you need to go beyond just saying that there is no, not sufficient places in the record for these compromises?

Irwin L. Langbein:

That is one ground that we certainly have —

Byron R. White:

But you don’t need to get these other charges of alliances and fraud, do you?

Irwin L. Langbein:

Well not just to knock out those —

Byron R. White:

If all the record showed that the trustee walks in the Court that here are some claims which have been objected to, but I recommend they be compromised at X dollars and the Court said fine, X dollars.

Your position is that just about all that happened and it’s insufficient.

Irwin L. Langbein:

That’s right.

We think the case law says that and likewise we say that on the other major issues here valuation and wrong standard.

Valuation — wrong standard, that’s a matter of law and when the trustee acting under that wrong standard doesn’t bring into the record or the Court keeps out of the record evidence for example of the present trends of the company, where he allows the company to be valued on the basis of three ships, although in fact there are four now, where he allows the company to valued on the basis of barges although the trustee has well matured plans.

He’s been spending company money, going out and investigating another type of ship, which he says is going to make it cheaper to run.

That at that point that evidence has got to come into the record and the Trial Judge said, no it can’t come into the record.

I’m not interested in anything expect what’s happening now.

This is a type of thing that we say you have to go beyond in order to stop this from happening again.

That this [Inaudible] is one of these fields and reorganization is one of these fields, it just requires supervision every now and then.

This is what makes bankruptcy ring.

We say to the Court to look into these things in every once in a while I am reminded of the right to consultation from the days of [Inaudible] Julian Wayneright.

He would bring them up here and we’d come up with charges and the Court would have to look into the record and see what happened.

Unpleasant job, unpleasant to all of you, unpleasant to investigate.

But if the Court of Appeals doesn’t do it, we are committed to do the duty of this Court’s [Inaudible] and the jury as well.

Earl Warren:

[Inaudible]

David Ferber:

Mr. Chief Justice, may it please the Court.

I should like to first discuss the question of the trustee succeeding himself as the President of the reorganized company. Chapter 10 of the Bankruptcy Act provides that the choice of the person to head up the reorganized corporation must be “Consistent with public policy.”

This is Section 221 of the Act which we quote on page four of our brief, if I may just read the applicable provision.

The judge shall confirm a plan if satisfied that there are various requirements such as if the plan is fair and equitable and feasible and finally the last requirement is that the identity, qualifications and affiliations of the persons who are to be Directors or officers or voting trustees of any, upon the consummation of the plan have been fully disclosed and that the appointment of such persons to such offices or their continuance therein is equitable, compatible with the interests of the creditors and stockholders and consistent with public policy.

Now, the choice of the reorganization trustee to be President of the reorganized company in our view flies directly in the face of policy of Chapter 10 which requires that the trustee be disinterested, Section 156 of the Act specifically provides that the trustee as well as counsel for the trustee must be disinterested and this is defined in Section 158 of the Act, disinterested.

David Ferber:

It excludes specific persons such as creditors and the debtor, stockholders and the debtor, the underwriter of existing securities of the debtor, Directors, officers and employees of the debtor and there is a catch-all at the end and this too is on page four of our brief.

The final provision which says that a person shall not be deemed disinterested if it appears that he has by reason of any other direct or indirect relation to — relationship to, connection with or interest in the debtor or such underwriter or for any reason an interest materially adverse to interests of any class or stockholders.

Now the importance —

[Inaudible]

David Ferber:

We feel that unless —

[Inaudible]

David Ferber:

Yes we feel that —

[Inaudible]

David Ferber:

No Your Honor, there have been fairly few cases where this has come up.

We have urged the position in several district court cases, the SEC as you may know although a party to these reorganizations may not take appeals.

[Inaudible]

David Ferber:

So far as I am aware we have that position in various cases going back at least to the 40s.

I believe there were cases in the earlier days where the commission may not have taken that position and there may have been — I just haven’t had — been able to survey them all, there may have some cases more recently where we neglected to.

Byron R. White:

In certain organizations, the SEC is obligated to the write a report on the plan?

David Ferber:

Yes Your Honor.

Byron R. White:

And did you say you don’t recall any cases since the early 1940s in which you have not objected to the trustee becoming President of a company of reorganization?

David Ferber:

I don’t recall any, but there could have been some.

I just — in other words I only know appeal cases where this has occurred in recent years and at least in the last few years those cases where it occurred, we did object.

Abe Fortas:

Did you take the position having objected and the trustee having nevertheless appointment President of the new company, did you take position of that invalidates the plan?

David Ferber:

Yes, that was the — this was the place we took the position in, in connection with objecting to the approval of a plan if the approval show that the trustee was to be as occurred in I believe in this case and otherwise at the confirmation.

Abe Fortas:

I understand that’s place that you have failed to expose your [Inaudible] you assert that position, but suppose your position were disallowed, did you thereafter take the position that invalidated the plan and made any distinction between the time and the occasion of which you make your objection and the consequences of the disallowance of your objection.

Because here you are saying not merely that it was wrong for the court below to approve the plan, to approve that feature of the plan, the trustee as a President, but you are saying that, that such approval invalidate the plan in this ground for setting aside?

David Ferber:

Yes, the confirmation of the plan we are saying and this where we generally would object in another words when the plan was submitted to us or when we first learned that it was contemplated that the Chapter 10 trustee was to be the President of — now this often we come up very, very late in the proceeding of course.

Now the reason that we feel that this is important and believe me we too have, we’ve learned from experience and that’s why I think our past action should not certainly conclude as here.

We think that when we look at the importance of the requirement of the disinterested trustee, which was certainly emphasized by the legislative history, the studies that preceded the adoption of Chapter 10 had shown case after case, where those able to manipulate the reorganization proceeding had benefited of the expenses scattered public investors to a lack of an independent trustee.

The committee report, the house report noted that the “functions of the independent trustee appointed in the larger cases are difficult to over emphasize” and I continue, “only through an impartial trustee can the court be in a position to exercise an informed judgment and to afford a critical scrutiny and supervision of these state at all times.”

The commission’s representative testified that the reorganization trustee, that requirement that he be disinterested was the key to real reform.

Potter Stewart:

That was the reform that the, a basic reform that the statute put in by requiring a disinterested trustee.

David Ferber:

Exactly.

Potter Stewart:

And if you have a disinterested trustee, truly so meeting all the requirements to the letter in the statute then what’s wrong with such a very high minded disinterested person becoming President of a reorganized corporation?

David Ferber:

It is our position that a man cannot continue to be disinterested once he is angling for the job of becoming President of the reorganized corporation.

We don’t know the moment he cease to be disinterested, but we do know that somewhere along the line he has been having conversations.

He has been talking with people.

He may have been taking actions to bring about this result and it is our position that there is a clear conflict of interest between wanting the fairest and best plan for security holders and wanting a plan that will make you the President of the reorganized company.

Abe Fortas:

Suppose he fell from grace only after the all the other terms of the plan had been approved, suppose this paragon and all these trustees are supposed to be paragons of virtue and suppose this paragon continue to be a paragon that everything else was decided and then he was invited to neighborhood salon by the dominant merging interest in the company and they discuss the matter quietly and they reluctantly agree that he would become President of the company. Does that make any difference in the absoluteness of the SEC’s view?

David Ferber:

I don’t believe so because I think the difficulty of proof of such thing just impossible.

For the outsider to be able to disprove that this is the way it happened.

Now in this case it epitomizes the contracts, I mean the conflict that the trustee was confronted with whether or not he was an honest man.

Whether or not in other words, let’s assume that he was completely honest.

He had choices to make, which a man cannot make without serious conflict that’s, we think ceases to make disinterested.

For example the charge here that in the operation of the business he signed a sweetheart contract with a Florida Towing Company.

This was a contract $1,500,000 a year, the biggest expense of the company.

It’s charged by the committee that he could have gotten the same kind of contract for $100,000 less, I don’t know whether that so or not, but we do know that Florida Towing Corporation has a man on the Board of Directors and was a very substantial creditor at the top.

So that here was a conflict right in the operation of the business of not hurting or perhaps helping someone which you would want to vote for you to be the President of the reorganized company.

The —

William O. Douglas:

I suppose you realize what you are arguing for is — goes against agreement of various fashionable practices —

David Ferber:

I don’t know the instances to which you are referring —

William O. Douglas:

Well I just happened to think if we galaxy of former Generals and what not who head up the big corporations of America who had served the Pentagon in [Inaudible] positions.

David Ferber:

I believe Your Honor that at least for several years.

William O. Douglas:

I am not trying to defend them I am just saying that [Laughter] perhaps you are talking about a symptom of a disease that’s much broader in this Chapter 10?

David Ferber:

Well, I think at least there are some safeguard in that area.

I believe for example the general who goes with the Chairman of the Board the new corporation cannot appear before the Defense Department at least for several years or with respect to any matter as to which he had worked previously.

So at least there are some sorts of safeguards, but here I think that the disinterested and this is not just in lacking because of the operations of course, but even more basically because of his duties in bringing about a fair plan in compromising claims.

For example the compromises here, we don’t say that you have to determine on this record that the compromises were unfair.

We think that you can determine very easily from this record that the compromises were not sufficiently explained that the compromise of Merrill-Stevens claim whereby Merrill-Stevens who received 40% of the stock of the debtor whereby they got their entire claim paid in full with an explanation of about one paragraph which in effect said something about well we don’t think they would take less.

Abe Fortas:

Were these compromises, does a record show that these compromises were made after the trustee was approached with respect of becoming President of the company?

David Ferber:

We don’t know when the trustee was approached.

We don’t know when this began Justice Fortas and this is one of the things we do know.

Abe Fortas:

There are lots of temptations to which even an independent trustee [Inaudible] for example on the questions of abuse, trustees would know for example that this case in these two companies to which you refer, would have a lot to say about whether he gets a $100,000 or $500,000 as fees?

David Ferber:

Only when he is, when its out of – you mean trustee fees?

Abe Fortas:

What you are saying maybe perfectly valid moral point that is to say that because of the difficulty of knowing just when trustee agreed to become a President or when came the idea and also because there is a prospect that he might become President of the company, he might make unduly favorable settlements if the people who were merged with control, it maybe correct or moral idea, but when you say that should be a principle of law assisted on by this Court rather than something that Congress to legislate here I suppose is a very serious problem.

David Ferber:

It’s the serious problem.

The Congress did legislate and said that the trustee must be disinterested.

It seems to me that that means this be in a position where he does not have serious conflicts of interests among the service of the trust in effect the security holders when he is to make the plans when its up to —

Abe Fortas:

You’re saying that you got to do some fairly rough at least arbitrary things with respect to time.

Now when the man that’s presumably when this man was appointed as trustee was independent then he later fell from grace?

David Ferber:

If this prophylactic position that we are asserting is followed it will prevent such falls from grace.

I didn’t, haven’t had a chance to point out the many important procedures that the trustee must accomplish.

He is the one who is primarily in charge of putting together the reorganization plan and valuing the debt and of taking positions as to what claims he shall oppose and of taking positions between perhaps contesting plans in each of these areas.

In this very case the trustee was put into serious positions of conflict.

For example, in the early plan which went through very quickly when the trustee skipped evaluation hearing and did not even begin to investigate this Caplan mortgage claim and the Caplan people got control of the reorganized company and he was made President.

Now, assuming he had a deal with those people to be President now naturally his interest was not to delay the reorganization by going through all these procedures.

With respect to the stockholders here, they have been litigating with the trustee.

They’ve been making all sorts of charges against him.

Presumably if they were cut into this reorganization, they would not be tempted to vote for him to be its President.

And so that when he is undervaluing, if he is undervaluing the data which will cut the stockholders out, here perhaps he didn’t undervalue, but it certainly there was a conflict.

Similarly when he opposed the claims of these stockholders, the creditor claims that is the base — the in effect recession claims on the theory that they purchased them on the ground of fraud when he opposed it not only on the merits but procedurally because he claimed the claims were filed, well he may have been right but he was certainly in the conflicting position to do this.

[Inaudible]

David Ferber:

I am not representing Your Honor that the trustee in these areas consciously violated his trust.

I do think he was derelict in his duties in not having the kind of hearings that the act contemplates in making compromises without bringing them out into the open and then not affording the procedures which Chapter X requires.

[Inaudible]

David Ferber:

No.

[Inaudible]

David Ferber:

Three and this — and compromised.

I really don’t know Your Honor, there were never a panel of more than three.

I should correct perhaps —

[Inaudible]

David Ferber:

No, I should correct a misunderstanding I think that Mr. Langbein did misunderstand your earlier question, there were three appeals that his committee was in right at the beginning of the reorganization.

There had been two other appeals by the Caplan group attempting to let it stay.

So coming back but those first two appeals didn’t delay this proceeding if anything they probably hastened it along because it was refusing to let them foreclose on the mortgage.

David Ferber:

My time is almost up.

I think I’ll have to rely on our briefs for our other points.

I would like merely to conclude by saying that we think in this case that they were omitted a substantial number of the safeguards for the protection of the public that Chapter X was designed to provide.

Some of the disinterested trustee I have discussed, the others are set forth in our brief.

While everyone is anxious to get this case finally over with, this Court through Justice Stone, many years ago in one of the first Chapter X cases, first cases to reach this Court pointed out they’re indicated that in Chapter X, the safeguards for public investors are not to be sacrificed for speed and conflict.

[Inaudible]

David Ferber:

We have no authority to promulgate a regulation.

We did ask Congress several years ago to adopt legislation along this line.

I don’t even know whether the bill, I think the bill got introduced but it never got to the hearing stage.

[Inaudible]

David Ferber:

Never got to the hearing stage into the core committee.

It sort of, I think believe it died shortly after it was introduced and we’ve never reintroduced it.

Potter Stewart:

What would that bill have provided?

David Ferber:

That bill would have provided that — would have put a two year period after the conclusion of reorganization before a trustee of the reorganization could be a President or I believe any other executive officer of a corporation.

[Inaudible]

David Ferber:

With this, the rule that we are asking this Court to adopt here is really that no plan can be confirmed where it is proposed that the trustee will be president of the new company and it comes up on the conformation.

Now, if this Court were to lay down such a rule and then let’s say the initial, the Board of Directors held a meeting three weeks later and threw out the President and elected a new President, I think we would say that was probably the fraud on the Court and that it would appear on the phase of it to be absent, very exceptional circumstances such as that the interim trustee had died or control have changed hands or something of that sort but I think the court would have to work it out, the courts would have to work it out on a case-by-case basis.

Byron R. White:

Could I ask you, let’s assume to the moment that the Court agreed that you want the contesting President [Inaudible] and agreed with the plan I believe outside of the conformation that [Inaudible]

David Ferber:

I think that we certainly think if we, if you agree with us I think you would also consistently agree that the plan hearings must be re-had and these compromises —

[Inaudible]

David Ferber:

Because it seems to me that this conflict permeates everything that is going on.

How can the trustee who would settles these —

Byron R. White:

[Inaudible] to your argument just a while ago [Inaudible] trying to that there would be settlement and maybe something wrong with the settlement [Inaudible]

David Ferber:

Well perhaps I did not make myself clear.

Prospectively at any given point of time certainly before we knew the trustee was contemplating being President.

We could show at that time that here is a man who is working toward a particular end of getting himself to be President.

Byron R. White:

Do you think that without you’re so called prophylactic rule wouldn’t just be cured or satisfied by appointing a new President.

David Ferber:

Oh No, very much no sir.

[Inaudible]

David Ferber:

This maybe what should follow, but not necessarily.

David Ferber:

If it becomes clear that the trustee cannot become President then at least the conflict that we are complaining about would not be there for future plan hearings and so forth.

Now, it is possible of course that by reason of the recriminations and litigation it might be that the committee or the commission might consider a motion to remove him at that time, but I don’t think that the issues are necessarily at all the same.

Byron R. White:

But you do argue I suppose that the Court doesn’t go along with you know, this trustee’s President if the reorganization was never — the confirmation was nevertheless be set aside under the ground, several other grounds.

David Ferber:

That’s right.

William J. Brennan, Jr.:

But the answer, question I asked Mr. Langbein, I gather, my understanding the SEC position that we agree that there should be a prophylactic rule that automatically that means this whole organization has been unscrambled and started over.

David Ferber:

Well it has to go back most of the way, yes.

William J. Brennan, Jr.:

What do you mean most of the way?

David Ferber:

Well I mean —

William J. Brennan, Jr.:

Go all the way.

David Ferber:

No in many things there has been no argument about, many claimants, no one dispute of them.

The essential things that there have been issues are with respect to are; one the valuation of this company, should the stockholders be cut in.

Two, the two large compromises of the two major creditors.

Three, whether or not the stockholders have a claim based upon the fraud in the sale of their stock.

Byron R. White:

Why wouldn’t you have to go back have the 166 [Inaudible] because that’s the place after that he was first supposed to be President.

I would think that its into your, since that’s the critical part of the reorganization, because you have to have it done by someone you felt was the President.

William O. Douglas:

That’s — on theory say that people running for President do all sorts of [Inaudible]

David Ferber:

We are sure he had been President with an earlier group, now whether during that —

Byron R. White:

Well he had been, the first reorganization plan had him as President.

David Ferber:

Right.

Byron R. White:

And then that was knocked over and he made an investigation under 157.

David Ferber:

That’s right, conceivably he could have at this time given up his idea of being President.

Byron R. White:

I think this would be the very time where you would say obviously you have to.

David Ferber:

I would think that —

William J. Brennan, Jr.:

Well this wouldn’t be upset if we adopted your basic position again, that the whole thing was unscrambled with.

David Ferber:

I certainly would not Your Honor.

Earl Warren:

Mr. Simmons.

William P. Simmons, Jr.:

Mr. Chief Justice, other members of the Court, may I please the Court.

There are four issues involved in this case, four general areas of issues and I want to divide my time between the four of them, approximately 15 minutes each roughly, leaving Mr. Spitzer to take his part of the argument.

Now I’m going to discuss them in this order there is the question of insolvency, is the debtor insolvent, though the stockholders are to be excluded from it.

The second issue is about the employment of the trustee.

William P. Simmons, Jr.:

You heard – been discussing that more than anything else here.

The third is whether the stockholders should be invited by the Court to file recession claims based on the alleged frauds that took place back before the reorganization began.

We haven’t had much discussion on that issue yet.

And the fourth issue is about the compromises of the claims, and we’re talking about two claims, the Merrill-Stevens Claim, which I’ll discuss and the Caplan mortgage claim which Mr. Spitzer will discuss because he is their attorney and one of the trustees.

And I’m going to take them up one at a time and I would appreciate the Court ask me questions about each one of these four things at the same time, although I have no objection to get operandi in the other, if you want — if you feel it pertinent.

Now about insolvency.

There should be no question about this debtor being insolvent.

It’s the weakest part in the whole case.

Let me just give you the facts and before I get into the facts on this, I want the Court to bear in mind that in every one of these issues, if you’re going to reverse the Lower Court, you’re going to have to take that record that stacks up this high and study those facts and place yourself in a position of that Trial Judge and ask and try to decide whether you would have decided those facts differently.

You might have, you might have in some instances, but I doubt it.

Judge Cho, judge Amet Cho who had been on the bench a long time and practiced law a long time before he went on the bench, he’s retired or aged 70 here about a year or two ago, but still continues to handle a case.

Byron R. White:

[Inaudible] If the Court says these compromises are in fact they are vulnerable because nothing appears in the record, they maybe absolutely not a compromise but there isn’t enough [Inaudible]

William P. Simmons, Jr.:

I’ll get to that when I get there.

There’s a lot in the record.

Your Honor there’s plenty in the record.

Byron R. White:

I’m just saying.

William P. Simmons, Jr.:

I know.

My argument assumes that there’s plenty in the record on the facts to sustain the compromises and if you read what I’ve outlined in my brief in the record on that — you’ll know a lot about the Merrill-Stevens claim and it’s objections.

You need just about all you need to know to make a decision as to whether a compromise would be acceptable or not.

My statement is based upon the fact that there are a lot of facts in the record.

Now on the question of insolvency, what does the evidence in fact show?

The total claims against this debtor were in were in excess $5,400,000.

Of these claims, over 2 million were either preferred claims, like government tax claims and non-tax claims that had preference or they were claims, secured claims, maritime lien claims or mortgage claims like the Caplan mortgage claim.

The company operates under the trustee.

The company started out and only it was in existence about a couple of years before it went on and it had this idea, it was run by this man named Rad and he had the idea of rolling on, called roll on roll off method of hauling freight, back in 1956.

You roll the trailers, the highway trailers on to the vessel and then you roll them off at the other end, overseas and you don’t have to have stevedore and it’s a lot easier to load and unload and you use the same trucks for a line haul on each end.

[Inaudible]

William P. Simmons, Jr.:

Yes sir, yes sir.

That’s the thing.

Back in the mid 1950s this was sort of a coming thing, so it caught on.

William P. Simmons, Jr.:

Since the trustee has taken over he has restricted his operations to hauling these trailer ships as we call them between Miami and Puerto Rico and between Jacksonville and Puerto Rico and all they used this business is five old World War II LST converted, the guts were taken out of them and you try and fix them up so you can haul freight and they are hauled by sea going tugs.

[Inaudible]

William P. Simmons, Jr.:

The company was organized in 1955 or it maybe it was in the end of 1954 and the reorganization proceedings began in June 1957.

They are now in their 11th year.

[Inaudible]

William P. Simmons, Jr.:

Yes sir.

A little over two years.

[Inaudible]

William P. Simmons, Jr.:

No sir it may be in there but we don’t consider it material at this point.

A lot has happened since it began.

Getting back to the facts with respect to the — whether it’s solvent or insolvent, as against these $5,400,000 in claims of which over 2 million were preferred or secured or claimed to be secured.

The valuation hearings held in the spring of 1962 disclosed that the assets of the company were worth less than $2 million, that is the assets being primarily these old World War II LSTs that were being kept — that they were — had converted into barges and were running, plus their motor vehicle equipment and shop equipment and terminal equipment was worth less than $2,000.

We had valuation proceedings which are rather extensive in the record on the value of these assets.

2 million, I’m sorry I made a mistake.

But the business had made money under the trustee whereas it had not made money under the former poor management that ran it in the ground, because he was a good successful trustee they made money and –

[Inaudible]

William P. Simmons, Jr.:

No, he had nothing whatever to do with the company in any way, shape, or form before and he met all of those requirements of the statute, he wasn’t a stockholder, he wasn’t a creditor.

He had no interest, he never heard of TMT until the Court appointed him as trustee.

So the company had made money under the trusteeship and it’s going concern value based on it’s earnings under the trusteeship up to that time reflected that it’s value was worth more than this $2 million in assets.

Our expert that is the trustee’s expert on the subject placed the going concern value at $1,800,000.

The expert put on the stand by the stockholders committee, placed the going concern value at about $4,000,500.

The trustee computed the going-concern value at about $2 million, and the district judge found the going-concern value to be $2,780,000.

This was based on the then high earnings of the company that is the estimated earnings for the year 1962 capitalized, is the way the court found that value.

The earnings during the seven years of the trusteeship that are that the — firm figures are in the record that is for the years 1958 to 1964 varied, the net earnings varied from $200,000 per year to $524,000.

They have been less in recent years.

They’ve had —

[Inaudible]

William P. Simmons, Jr.:

That is — this is in the record, these are — financial statements are in the record certified by that certified public account as to the earnings of the company.

The court accepting these financial statements as accurate made of finding of going-concern value.

Now in determining whether, bear in mind that the issue is not what is the going-concern value of the debtor, the issue is the debtor solvent or not.

William P. Simmons, Jr.:

So this going-concern value does not have to be fixed and determined accurately, as you would in a condemnation suit or possibly a rate base in a rate case.

The only reason for computing the going-concern value is to determine whether or not the debtor is solvent.

In this case it’s important because of the success of the trustee; the going-concern value is more than the cash value or the value of the assets from sales.

The district judge found it to be, he found it to be $2,780,000.

[Inaudible]

William P. Simmons, Jr.:

The value that you would pay for this business as a going-concern and it is computed by capitalizing the estimated earnings of the business, not its sale value of its assets.

[Inaudible]

William P. Simmons, Jr.:

Not the sale or cash value of its assets, no.

[Inaudible]

William P. Simmons, Jr.:

By going-concern value we mean what is its value as a going business earning money.

Earning money and it’s based on the capitalization of the earnings.

[Inaudible]

William P. Simmons, Jr.:

Going-concern value is computed on profits, on the earnings of the business.

[Inaudible]

William P. Simmons, Jr.:

As distinguished from the value of the physical assets itself.

Now the only criticism, the SEC admits that it appears that from these figures that I have given you this, this debtor is hopelessly insolvent and I want to — before I get to their point, I want to point this out that the $5,400,000 figure of the total value of the claims is not the figure that you have to use to determine solvency or not.

Interest must be paid to creditors on their claims before stockholders can get anything if the company is solvent and the courts have so held.

So we are not talking about in this case $5,400,000 in claims, but through the years the interest on these claims would make the insolvency even greater than it would appear from the figures that I have given.

Now the only real issue in this point is did the district court fail to consider evidence of probable growth of the business after reorganization.

The SEC’s contention is that the law requires recognition of contemplated changes in operations and acquisitions that are likely to take place after reorganization.

They are indicated in this case that those changes will have to take place.

These changes will have to take place because these old LSTs have got to be replaced.

They were expendable.

They were built 22 years ago, and they were designed to be destroyed quickly and they don’t have thick skins and this company spends tremendous sums of money every year to the Coast Guard, makes them bring them in, replate them and they just spend hundreds of thousands of dollars every year and it’s in the record, keeping these old LSTs running, they’ve got to be replaced by more modern barges.

So naturally the trustee is looking and thinking about replacing them and what’s going to be the cost.

It is going to cost from $1 million to $2 million to build another type vessel that will be efficient and you got to have, you got to replace all five of them.

But that’s as far as the trustee can go.

He can’t commit in his planning the reorganized company what it’s going to do to replace these vessels.

He can’t determine the financing of this thing.

In fact the SEC even says, he shouldn’t even be thinking about it and yet in their argument they say that the trustee should have brought in to the court an estimate of going-concern value based on prospective earnings in the future, based on new vessels and new financing of those vessels in the future.

William P. Simmons, Jr.:

Now the trial court after hearing all this evidence on this subject, and we did have two experts that looked into the future and gave their opinion, the trial court said all this speculation about future profits and earnings on the change conditions with new vessels and new kind of financing is not reliable.

The most reliable information is that which we have of the trustees’ own operations and everything is in this record concerning what has been done under all the years of the trustees operations up to the time the two evaluation hearings were held and bear in mind that this plan has been through the mail twice.

It went through the mail once in 1962, it went up to the Appellate Court and came back and the same plan has been through the mail again.

So we’ve had two evaluation hearings, one in 1962 and another one in 1965 and the trustees – and the Court found that the company in 1965 had not been making as much money as it had before the previous evaluation hearings and so it said that if it had to make another finding of going concern value it would be less now than it was at that time.

Byron R. White:

What percentage of their claims were the unsecured creditors?

William P. Simmons, Jr.:

The unsecured creditors had originally about three 3,200,000 and the preferred and secured 2,200,000.

Byron R. White:

So the preferred claims just about to took the all the value?

William P. Simmons, Jr.:

That’s right.

Now we converted — one of the compromises was to convert $5,574,000 of the alleged secured claims of Merrill-Stevens over in to the unsecured class, that was the compromise and reduce it.

Byron R. White:

And what percentage of the unsecured creditors claim was actually recognized in a way of stock, I suppose they got stock didn’t they?

William P. Simmons, Jr.:

All of he unsecured creditors, got all of the stock in the new company.

Byron R. White:

And the preferred claims [Inaudible]

William P. Simmons, Jr.:

They didn’t get any, now since you’ve asked the question, Your Honor.

Byron R. White:

[Inaudible]

William P. Simmons, Jr.:

I’ll go into that now because it’s important.

This is the simplest most equitable plan of reorganization you can think of.

I can’t think of a simpler one.

I’ve outlined the situation with respect to the claims.

In the plan of reorganization since debtor is obviously insolvent, all the new common stock is given the unsecured or common creditors in proportion to their claims, when we got through converting some of them to — in compromising some of them over to unsecured they total about three million, seven or eight thousand dollars.

So the company is turned over to its unsecured creditors and they swap their claims for the common stock prorata and the secured creditors and the preferred creditors are all paid all in cash and Your Honors they have been paid off in cash.

They have been paid off in cash.

This plan has been consummated substantially.

All the preferred creditors and all the secured creditors have been paid.

Byron R. White:

Was the Merrill claim, a maritime name case?

William P. Simmons, Jr.:

$574,000 of it was and it’s compromise was to convert it to unsecured and it has been paid in stock.

Byron R. White:

Otherwise Merrill’s claim was just an unsecured claim?

William P. Simmons, Jr.:

Yes sir, out of the $1,600,000 claim, roughly 1 million of it was unsecured from the beginning and nearly 600,000 was preferred.

Byron R. White:

[Inaudible] mortgage claims that are that were also settled they were paid in cash?

William P. Simmons, Jr.:

The capital and mortgage claim of 330,000 plus interest, costs, attorneys fees and everything was settled for $250,000 in cash and the 250,000 has been paid to it.

That’s the plan, it’s a simpler plan as you can think of and that is the plan that they were trying to sustain here, to turn this company over its common creditor yes Your Honor.

[Inaudible

William P. Simmons, Jr.:

No sir, the company is insolvent so they have no equity in it and no right to participate and since the company is hopelessly insolvent under the facts in this case.

Byron R. White:

Unless they are — unless they have a claim that the company could not recognized?

William P. Simmons, Jr.:

That’s another issue, that’s an entirely different issue.

[Inaudible]

William P. Simmons, Jr.:

A little over two years, two and a half years at the most.

[Inaudible]

William P. Simmons, Jr.:

Yes Your Honor rather, rather amazing.

[Inaudible]

William P. Simmons, Jr.:

Yes it had it had a lot of stockholders.

At the time the reorganization proceeding began there were a lot of stockholders that bought the stock on the open market.

[Inaudible]

William P. Simmons, Jr.:

It was — most of it was issued to persons in payment for services and materials and supplies and equipment and that sort of thing and some of it was issued for cash and sold, very little of it was registered.

[Inaudible]

William P. Simmons, Jr.:

That’s right very little of it.

Getting into the — so closing out the — on the issue of insolvency I think there is plenty of evidence in the record to show this debtor is insolvent and I don’t see how the Court find otherwise.

Byron R. White:

Did the claims against outsider with the trustees just existed at one point, did those claims against outside [Inaudible] compromises that were approved?

William P. Simmons, Jr.:

Only some of them, when I come to discussing the compromises —

Byron R. White:

So that would certainly increase the assets of the company, if those claims were good and they were collected?

William P. Simmons, Jr.:

They weren’t though, we decided that they — we pursued some of it, we pursued we filed two suits —

Byron R. White:

Claim to extent the claim to extent that the claim is made here that trustee did not pursuit claims that should have been pursued, if the trustee should have pursued then he would have collected the money.

William P. Simmons, Jr.:

That’s right.

Byron R. White:

There would have some more assets to the company.

William P. Simmons, Jr.:

The principal ones they are complaining about are the counter claims against the claims of Merrill-Stevens and the captain mortgage.

Byron R. White:

And those claims you say wash out with the company?

William P. Simmons, Jr.:

That’s right I do.

One more point on that insolvency, if you wiped out — Your Honor if you wiped out those claims entirely, you wiped out those two claims entirely nearly $2,000,000 worth, the company would still be insolvent.

The fact of insolvency is the most important fact here because these stockholders have got no right to complaint against the compromise of these claims, because they have no equity in them, the compromise is of concern only to the creditors.

[Inaudible]

William P. Simmons, Jr.:

I don’t think — it is my opinion Your Honor that if you took every favorable factor that they have, I still don’t believe it would be solvent because you’d have to add interest to those claims and if you took their experts most favorable one, I don’t think it would be solvent, I’ll go into the rest of it tomorrow.