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

PETITIONER:Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc.
RESPONDENT:Anderson
LOCATION:Telephone Booth

DOCKET NO.: 38
DECIDED BY: Warren Court (1967-1969)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 390 US 414 (1968)
ARGUED: Nov 07, 1967 / Nov 08, 1967
DECIDED: Mar 25, 1968

Facts of the case

Question

  • Oral Argument – November 07, 1967
  • Audio Transcription for Oral Argument – November 07, 1967 in 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

    Earl Warren:

    Protective Committee for Independent Stockholders of TMT Trailer Ferry Incorporated, Petitioner versus C.Gordon Anderson, Trustee.

    Mr. Simmons, you may continue your argument.

    William P. Simmons, Jr.:

    Mr. Chief Justice, may it please the Court.

    I would — the issued that I will discuss first this morning is the issue concerning the employment of the trustee by the reorganized company.

    The success of the trustee in operating the business of a data is best illustrated by the fact that when he took over in November of 1959 — 1957, almost exactly 10 years ago, business was at a stand still.

    The ships were not moving.

    They were in bad need of repair and there was little hope for the business so everyone thought.

    Under his able management, the business grew to the point where by 1964, the end of the — or 1965, when we began by the end of 1965, when we began to consummate the present plan of reorganization, the business was able to pay off in cash over $1,500,000 in claims being all of the preferred claims and all of the secured claims.

    Of this sum, about $1,100,000 went to the United States Government for its tax and nontax claims.

    And of — and $250,000 went to the — to pay off the Caplan mortgage, the compromise of the Caplan mortgage claim.

    This — the payment of this large sum of money to pay off all of these claimants in these two categories, did not come out of the earnings of the business.

    Most of it came from a loan of $1,250,000 that the reorganized company was permitted by the Court to make from a bank in Florida, a long-term loan which reorg —

    Earl Warren:

    How much came out of the earnings?

    William P. Simmons, Jr.:

    The rest of it came out of the earnings.

    Earl Warren:

    What was the rest of it?

    Who said —

    William P. Simmons, Jr.:

    The total of the claims was — in excess of $1,500,000, so of that sum approximately between $250,000 and $300,000 came out of the earnings of the data.

    Earl Warren:

    In the 10 years.

    In the —

    William P. Simmons, Jr.:

    Yes Your Honor.

    Earl Warren:

    — ten years?

    William P. Simmons, Jr.:

    The earnings had been a great deal more than that.

    Most of the earnings had been plowed back in to the business to purchase new or purchase more LST’s.

    When the trustees took over, they were operating only three of these old World War II LST’s.

    During his tenure, they have purchased and converted two more of the LST’s so they’re operating five.

    And most of the earnings of the business during that period of time had to be plowed back into additional assets.

    So it was inevitable, almost inevitable that persons who were interested in inquiring this company upon reorganization would want to retain the services of — the good services of this trustee, and so it was has it been emphasized in all of the briefs.

    All of the plans of reorganization have contemplated the retention of the services of this trustee.

    The present plan of reorganization, this internal plan which I have described to the Court, was prepared by the committee appointed by the District Judge to represent the unsecured creditors as a class.

    This committee — the larger creditors of course were represented by their own counsel.

    William P. Simmons, Jr.:

    And so the Court appended a committee of two experienced local attorneys to represent the general mass of the unsecured creditors.

    And this committee presented and suggested this internal plan of reorganization which included the two compromises of the claims that are among the issues here and also included a provision which contemplated the retention of the trustee’s management by the reorganized company.

    It did not require the retention of that management.

    It merely permitted it and put everyone on notice that though — the proponents of the plan contemplated the possible retention of the trustee and his good management team.

    Now, our first point of course is that Chapter X of the Bankruptcy Act does not preclude the employment of the trustee and all of the recorded cases thus far, that have touched on this subject have permitted the employment of the trustee.

    Or rather more accurately stated, cases as cited in the brief of the Securities and Exchange Commission, they have cited to the Court instances where the trustee has been retained or employed by a reorganized company.

    And there is no — there are no decisions where that has been prohibited as a matter of law.

    It appears to us that the matter is left entirely to the discretion of the District Court under Section 221 (5) of the Bankruptcy Act, which simply requires a complete disclosure of the identity, qualifications and affiliations of the persons who are to be the initial directors and officers of the reorganized company and the finding that their appointment by the Court would be compatible with the interest of the data and consistent with public policy.

    We think this is a finding of fact to be made in each case.

    It has been made in this case by the District Judge that this trustee’s retention would be in the best interest of the data.

    The opposing contention is based upon an interpretation of Sections 156 and 158 of the Bankruptcy Act, which pertain to the appointment of a disinterested trustee.

    But nothing in those statutes asses or implies that an interest in employment by the reorganized company is a disqualification to act as trustee.

    Opposing counsel would write into the statute a meaning that is not stated.

    Their position is not sound and presupposes that a trustee will necessarily breach his trust if he contemplates continuation of his employment.

    This is contrary to human experience or a person with an incentive will do a better job than one who knows that his services will be terminated no matter how well he performs.

    Opposing argument of opposing counsel of course overlooks the benefits to the data of being able to retain the services of a good and successful trustee.

    It also overlooks the fact that all of the trustee’s actions are subject to court approval.

    The criticism that you have heard here yesterday expressed of this trustee and the things that he did involve matters that were all approved by the Court.

    For example, the towing contract, the award of a towing contract was criticized and the recommendation of the compromise of these two large claims was criticized.

    But both of those matters have been the subject of many hearings in court and an opportunity to be heard by all parties and throughout this proceeding.

    That has been true with respect to all actions of the trustee.

    They have been subjected to a great deal of scrutiny, a great deal of criticism by the Stockholders Committee.

    Does the record show the background to this trustee and (Inaudible)?

    William P. Simmons, Jr.:

    Yes sir.

    The trustee is a retired successful merchant.

    For many years, he was a manager of a large retail department store and a successful reputable businessman in Miami.

    He’d lived in Miami for many years.

    He’d been associated with large department stores.

    This is well-known in the community.

    He’d retired and the Court appointed him as trustee.

    William P. Simmons, Jr.:

    He’d had no interest or knowledge of TMT at all before that.

    He’d been in the — he’s just a good businessman and he brought to the trusteeship with him the man that had been his general manager and right-hand man in the retail merchandizing business, Mr. (Inaudible), who brought a great deal of know-how and sound business methods to this trusteeship.

    It would appear that opposing counsel would write into the Bankruptcy Act something that Congress has not written into it.

    And I think it was admitted yesterday that in 1948 or 1958, the SEC sponsored enacting Congress that would have expressly prohibited the employment of a trustee for a period of two years after the conclusion of reorganization proceedings and it would appear that the SEC knows that Congress has not yet prohibited the employment of the trustee.

    So we say that the Fifth Circuit placed a proper construction on the statutes involved here when it held that the proponents of the plan that that — what the — the dis — the appellate court held that the trustee is not disinterested unless the proponents of the plan assured him of emoluments and security rather than merely nominating him for approval by the Court and subject to the usual control of the board of directors.

    Now, one of the most imp — significant factors in this whole issue is that, no attempt has been made to disqualify this trustee because of his interest in employment by the reorganized company or for any other reason.

    If the position of opposing counsel is correct, this trustee has been disqualified since early 1959 for that was the first time when a plan of reorganization was proposed that contemplated his employment.

    Every plan has contemplated his employment since early 1959.

    So we say to the Court that it is too late now to urge that his past disqualification prohibits him from being employed in the future.

    The plan has been substantially consummated.

    New directors have taken over the operations of the business and are running the company with this trustee in his team in charge of operations.

    It would be highly inequitable to re — now require the reorganized company to fire him and force him — enforce it to employ a less qualified person to run the business.

    We say that the petitioner and the Securities and Exchange Commission are now estopped to raise this question after having permitted the trustee for eight years to operate the business of this data, knowing all that time that he was being considered for employment by the reorganized company without coming in and specifically asking the Court to remove him for that reason.

    Another point that I want to emphasize is, that this issue was decided by the Fifth Circuit in its 1964 decision when this plan of reorganization was first reviewed by that Court.

    You recall it has been reviewed twice and we’re here after the second review.

    The very provisions of the plan that are here now were before the Fifth Circuit in 1964 and the Fifth Circuit upheld those provisions in the plan with respect to the employment of the trustee.

    Therefore, that decision became the law of the case for no appeal was taken from it.

    And we say that this Court should now recognize under the circumstances of this case, the law of the case on the question of the trustee’s employment as it was decided by the Fifth Circuit in 1964.

    When the Fifth Circuit sent the plan back in 1964, it sent it back only to determine its feasibility in the light of the companion decision which it made in another case requiring payment in full of the Government nontax claims.

    These claims amounted to $900,000 so there was a question as to whether the data would be able to do it.

    But by means of this bank loan that I referred to a while ago, the $1,250,000 borrowed in that amount of money, the data was able to pay the Government nontax claims in full as well, as I have said, all other preferred and secured claims.

    So the plan of reorganization that we now have before us, the amended plan is amended only in one particular, one material particular: that is to provide for the payment of the nontax claims of the Government in full.

    It was not amended in any particular with respect to the employment of the trustee.

    And the amended plan that we have here now approves the appointment of the same officers and directors of the reorganized company as the first plan did back in 1964 when it first went to the appellate court.

    Now the Court well knows that the law of the case is a salutary one designed to end litigation.

    And under the decisions of this and other courts, it should be recognized and followed, unless there are impelling reasons for reversing the former decision.

    On the contrary in this case, there are impelling reasons for allowing it to stand.

    Number one, there’s been no effort to remove the trustee, as I have pointed out.

    Number two, the creditors, who are the real parties in interest here, want to retain the trustee.

    Not a single creditor, not one, has come forward to object to the employment of the trustee by the reorganized company.

    William P. Simmons, Jr.:

    These creditors of course are now the new stockholders, the new owners of the reorganized company.

    On the contrary, they have urged to the District Court the approval of his appointment or his being a director and the president of the reorganized company.

    Third, substantial consummation of this plan has taken place as I have previously described to this Court.

    And it would certainly serve no useful purpose in this case to prohibit his future employment because of a — an alleged statutory pass disqualification to serve his trustee.

    And finally, it is apparent from the record in this case as the District Court so found that the best interest of the reorganized company require to re — they require the retention of the valuable services of the trustee and his management team.

    I would like to — unless the Court has some questions on that point, I would like to go to the next point.

    Earl Warren:

    I’d like to ask this Mr. Simmons —

    William P. Simmons, Jr.:

    Yes.

    Earl Warren:

    — were these alleged conflicts of interest raised in the court below, in the District Court?

    William P. Simmons, Jr.:

    Asserted time and time again in pleadings —

    Earl Warren:

    But the District Court make specific findings as to his lack of it?

    William P. Simmons, Jr.:

    No Your Honor.

    I’d have to put it this way.

    At no point did — has anybody raised any of these things as it faces for disqualifying the trustee as trustee.

    They keep raising them in this litigation through the years as a reason why he should not be retained or employed by the reorganized company.

    But not as a re — this is what’s inconsistent about the whole thing.

    At no point have they said, and I think counsel for the SEC admitted that in response to a question yesterday that they had not raised the question about his qualifications as trustee.

    They say just as a matter of prophylactic rule they say, that he shouldn’t be retained by the reorganized company.

    Earl Warren:

    Well, was evidenced — evidence was introduced as to that conflict of interest alleged?

    William P. Simmons, Jr.:

    No, because there was never any issue presented to the Court on it.

    It was asserted from time to time.

    It was asserted that the trustee for example, for some reason favored the towing company that he recommended that the towing contract was awarded to that that the fact that he awarded the — recommended the award of the contract without competitive bidding or something like that, indicated that he favored that company as against maybe somebody else.

    And these things were asserted but — well that particular issue was heard in connection with the towing contract and overruled.

    The Court approved the award of the towing contract to the company recommended by the trustee.

    That’s the way these things came up.

    On individual issues and actions of the trustee, they would object to him and the Court would enter an order.

    And in no time was a clear cut issue presented to the Court that the trustee was disqualified.

    The next issue is the — that I will discuss is the matter of the compromise of the lien claims against the vessels of the data.

    Now, when this plan came back from the appellate court in 1964 and the appellate court had held that that this $900,000, a nontax claim to the Government had to be paid in full in cash.

    It posed a real practical problem.

    William P. Simmons, Jr.:

    In addition — because in addition to this $1 million — actually $1 million one — $1,200,000 in tax and preferred claims that had to be paid in cash.

    There were these lien claims against the vessels of the data.

    I’m adding to approximately a million dollars.

    Well something had to give or it would not be able to work out a plan of reorganization.

    So, it was inevitable that settlement discussion would take place with respect to these lien claims against the vessels of the data.

    The two largest lien claims were the ones in controversy here.

    The Caplan mortgage was in the principal sum of $330,000 and it was a preferred ship mortgage on all the vessels of the data.

    The other lien claim was the $574,000 lien — series of lien claims again — by Merrill-Stevens against all of the vessels of the data.

    So with the approval of the Court and the knowledge of everyone concerned, settlement discussions took place between the trustee, the trustee’s counsel and counsel for these creditors.

    And the result was that when this creditors committee proposed the present internal plan of reorganization, that plan included in it as an integral part the proposed compromises of these two claims.

    The Caplan mortgage claim of base amount of $330,000, which had added to it interest, cost and attorney’s fees which would have make it at least $500,000, was reduced to $250,000 payable in cash.

    And that — and in connection with the consummation of the plan that has taken place, that $250,000 has been paid to the Caplan mortgage trustees.

    The only other fact in that compromise was that the interest due — accrued interest due on that mortgage was paid against common stock of the reorganized company or satisfied by giving them common stock.

    Now, the Merrill-Stevens claim, lien claims against the vessel amounted to $574,000 and the compromised with Merrill-Stevens provided that those claims would be taken off of the vessels entirely and that amount would become an unsecured claim payable in common stock of the reorganized company.

    And that was the settlement there.

    The result of these two compromises meant that the plan was feasible; that instead of having to pay up perhaps puts to a million dollars or satisfied puts to a million dollars in lien claims of preferred ship mortgage claims against the vessels of the data.

    The data would only have to pay $250,000 and the balance in the common stock of the reorganized company which it didn’t cost him anything in cash.

    And as a result of these compromises, the plan was made feasible.

    Now, the objections to the compromises are, the SEC states in its brief that the record contains insufficient facts for the Court to form, to make an informed judgment of — on the merits of the compromise.

    The petitioner, the Stockholders Committee, in addition says there was inadequate investigation of the objections to these two claims.

    Now neither of these contentions is sustained by the record.

    I’m not going to discuss the Caplan mortgage claim and the terrific investigation that was made of it.

    It’s stated in our brief and Mr. Spitzer represents the Caplan mortgage people and will go into the details of that during his time before the Court when I finish.

    But, with respect to the Merrill-Stevens claim, we’ve outlined in our brief the numerous pleadings and places in the record where the facts concerning this claim and particularly the objections to it are set forth in great detail particularly by opposing counsel.

    And insofar as investigation is concerned, the record shows as we point out in our brief that no less than four investigations were made of the Merrill-Stevens claim.

    There is a reference in the record to a trustee’s investigation in 1959 which he reported in his opinion, the amount of the claim and so far the value of Merrill-Stevens services was concerned was substantially awarded or justified.

    Admittedly, that wasn’t much of an investigation.

    We don’t have much in the record on it.

    The next investigation was the Securities and Exchange Commission investigation in 1961, and they reported that rather thoroughly to the Court and to — in his own record.

    The Stockholders Committee made —

    Earl Warren:

    What was the result — what did they report?

    William P. Simmons, Jr.:

    They recommended — they reported that their investigation — they had very little criticism of the amount of the claim.

    Bear in mind that the total amount of the claim was $1,600,000 and there is little objection to the fact that Merrill-Stevens did perform extensive work on the vessel and for which it was not paid.

    And there’s little dispute as to the amount of the claim.

    But the SEC objections stated that Merrill-Stevens did not — the main objections are — with respect to the million dollar claim against the Carib Queen for rebuilding the Carib Queen, Merrill-Stevens did not properly convert the vessel.

    They did not comply with the terms of the contract.

    They did not properly repair the vessel and they fail to establish the value of its work and materials.

    And in addition, the petitioner in its charges against — objections to the Merrill-Stevens claim, repeated what the SEC had said and went on to say to charge that Merrill-Stevens is liable in thought for negligence in performing the work on the vessel causing in part the downfall of TMT.

    They also charged that Merrill-Stevens bought stock in TMT for which it has not been paid.

    And that is a substance of the charges that they made against Merrill-Stevens.

    Merrill-Stevens filed pleadings denying all of these.

    And in addition to the Securities and Exchange Commission investigation and the Stockholders Committee investigation, the trustee or rather — our firm, as counsel for the trustee, took all of these information that was made available to us by the SEC and the Stockholders Committee and by Merrill-Stevens and made an off-the-record investigation of all of these things just as attorneys always do in connect — when the question of settlement of a claim is being considered.

    We studied all of these and reported to the Court that — as follows, two attorneys in the office of counsel for the trustee have examined the factual data, gathered in the trustee’s investigation of the objections to the Merrill-Stevens claim.

    And it is the considered opinion of both attorneys that the possibility is remote of obtaining any reduction or material reduction in the amount of the Merrill-Stevens claim by litigating the objections against it.

    Trial of the issues raised by the objections would be time consuming and would result in unnecessary delay in formulating a plan of reorganization.

    That is our considered judgment of this compromise as attorneys for the trustee.

    And I say to the Court and all candidates, one thing to sit up in your office and prepare pleadings and make objections and file fraud charges.

    But it’s quite another thing when you’re on the firing line and have to make the decision as to whether you’re going to file a lawsuit by the claim or compromise it on a reasonable basis.

    And we advise the trustee and we advise the Court that this compromise should be accepted and the Court accepted our opinion.

    Earl Warren:

    Did the Court —

    William P. Simmons, Jr.:

    And that’s it.

    Earl Warren:

    Did the Court have any hearing on the subject as to —

    William P. Simmons, Jr.:

    The —

    Earl Warren:

    — the relative merits of these reports that were made?

    William P. Simmons, Jr.:

    Not expressly, the — bear in mind that the proposed compromises were an integral part of the plan of reorganization.

    And therefore, the hearings — the extensive hearings that were held on two different occasions in 1962 and in 1965 again, on the merits of the plan whether it should be approved or not, are the hearings that involved everything in connection with the plan, including these objections.

    And our report to the Court on this was — came out in there.

    William J. Brennan, Jr.:

    What was your —

    Earl Warren:

    Well, was there any — was there any evidence taken on — before the Court in any proceeding on these reports?

    William P. Simmons, Jr.:

    No, we had — no evidence was taken on it.

    William P. Simmons, Jr.:

    We had in these investigation reports and — in the record, sufficient facts to show on the one hand what the basis of Merrill-Stevens claim was and on the other hand, what the basis of the objections were and no evidence was taken.

    Earl Warren:

    Was there any request made by either side to have it — to have a hearing before the Court?

    William P. Simmons, Jr.:

    The Stockholders Committee kept yelling for more investigation, more investigation.

    We did not think more investigation was necessary.

    Earl Warren:

    Do they — did they ask for a hearing before the Courts on the facts?

    William P. Simmons, Jr.:

    They may have.

    But in the meantime, none was necessary because the creditors committee had proposed the compromises and we’d recommended the approval of the compromises and we didn’t think that any good would come of any hearings on the objection.

    We didn’t think we had to get in and upheld the facts before the Court and try the thing — before the Court to determine whether or not there should be an approval of the compromise.

    Byron R. White:

    What is the — what do you think normally happens within a — when an objection is filed to the claim?

    William P. Simmons, Jr.:

    This Court has held and the law seems to be clear that you don’t have to hear objections to a claim, parti — where the settlement of that claim is proposed as an integral part of the plan of reorganization.

    The hearings on the feasibility and the fairness and so forth of the plan that are held in — are the hearings in which those matters are considered.

    Byron R. White:

    Well, let’s assume some creditor votes against the plan and has also filed an objection to somebody else’s claim.

    Do you think that the vote of the two thirds of the class keeps him from having a hearing on the objection of that plan?

    William P. Simmons, Jr.:

    No, sir, I do not.

    Byron R. White:

    Well how about this case then?

    How come the stockholders didn’t get a hearing on their objection?

    William P. Simmons, Jr.:

    They —

    Byron R. White:

    The only reason you’ve got this is — is the only answer that they had no interest in the reorganized — reorganization?

    William P. Simmons, Jr.:

    That’s our principal answer.

    Byron R. White:

    If they did had an interest, would you say they’ve would’ve — a hearing on the objections would’ve been required?

    William P. Simmons, Jr.:

    Not where the compromises proposed as an integral part of the plan of reorganization and the hearings that you have on that are the — the hearings on the plan go into the whole thing including the compromise, if you don’t have any specific hearing on it.

    Earl Warren:

    What difference would that make if the compromise was in fact fraudulent?

    Why shouldn’t they be in here of some kind to determine the liability of claim?

    William P. Simmons, Jr.:

    Your Honor, if there had been any basis for a charge of fraud in this case, I think we would have had a hearing.

    For one of the things we emphasize is that there’s no facts in this record to show that Merrill-Stevens is guilty of any fraud.

    Now — and we point that out in our brief.

    Counsel appeared yesterday, said that Merrill-Stevens was guilty of fraud and in the next breadth said the fraud was connected with Sha — with Abrams and Shaffer who wrecked the company.

    There’s not a thing in this record to connect Merrill-Stevens with Shaffer and Abrams or the Caplan mortgage people at all.

    That is prior to the beginning of the reorganization proceedings in this thing.

    There is no basis and this is the point that we make in our brief.

    William P. Simmons, Jr.:

    There’s no basis for fraud against — the only charges against Merrill-Stevens are that they didn’t repair the vessel properly and are responsible for it breaking down at sea and things of that kind.

    Things involving tort claims against that which when we waived these things, we decided that the burden of proof just wasn’t worth going after, particularly when the creditors wanted it.

    Earl Warren:

    Maybe you would’ve decided that representing the trustee, but as with the Court any interest in that whether it’s fraud or whether it’s tort, that reduces — well let’s say, reduces a claim of a million and a half down to a half a million.

    Wouldn’t the Court have an interest in determining that fact when there are reports by the Stockholders and by the SEC to the effect that that is a fact?

    I would think that in the interest of preserving the assets of the company for anybody who might be entitled to it that the Court would be interested in determining that fact.

    William P. Simmons, Jr.:

    Your Honor, the Court was interested and so are we as counsel for the trustee.

    We’re anxious to recover everything possible for the debtor in this particular case.

    But we were influenced by the fact that the creditors concerned were anxious for these — both of these compromises to take place in order that the reorganization not be delayed.

    And this was a very important factor and we felt on — from our examination of the facts and the dispute and everything and we still stand by it, that it was not the objections to the claim were not — did not warrant litigation in view of the fairness of the proposed compromise.

    Earl Warren:

    But Mr. Simmons I can see how you could — on your investigation becomes satisfied of that but how could the Court be satisfied of that if it didn’t have a hearing on that conclusion on your part as compared with the reports of the SEC and the stockholders to the contrary?

    William P. Simmons, Jr.:

    Well, we argued to the lower court that there were no basis for fraud chares that this was a factual matter and we would have the burden of proving that the breakdown of the vessels and all that was caused by Merrill-Stevens in spite of the fact that the vessel was accepted by the government authorities and everybody concern and put out to sea.

    We had weighed all of these things and we gave the results of our weighing of these matters to the Court.

    Now this is a way cases are settled, the — but commonly we study the facts and you report and recommend to your client the basis of your settlement.

    We didn’t try to spread all the facts and the reason before the Court except that conclusion on the matter.

    Abe Fortas:

    Did the SEC take a position on the Merrill — whatever it is, claim?

    William P. Simmons, Jr.:

    They —

    Abe Fortas:

    Did they say — did the SEC alleged that it was fraudulent that that was (Voice Overlap) —

    William P. Simmons, Jr.:

    No, they never alleged that it was fraudulent.

    They merely alleged — stated the objections.

    They stated there was — they’d uncovered evidence to indicate that Merrill-Stevens was — may have been guilty of negligence or breach of contract in some manner in performing the work on these vessels.

    Abe Fortas:

    And did the Court ever go into that?

    William P. Simmons, Jr.:

    We never tried the matter except to consider and weigh the — object the statements that Merrill’s — denials of Merrill-Stevens, the statements on the other side and then the Court considered the compromise which all of the creditors approved.

    Now all the creditors wanted the compromise very much.

    I think I’ve made that quiet clear.

    No creditor objected to the compromise and the creditors are the real parties in interest.

    They’re the ones who would benefit by the compromise or would benefit by any recovery.

    It might be —

    Abe Fortas:

    Did the SEC object —

    William P. Simmons, Jr.:

    — made against Merrill-Stevens.

    Abe Fortas:

    Did the SEC object to the compromise?

    William P. Simmons, Jr.:

    Yes.

    They have (Inaudible) and through here objected to the compromise, only on the basis that we — that we didn’t go in and tried the thing.

    Now, I want to — we had to make a recommendation as to which, what we’re going to try and what we’re not going to try about all these claims that have been made against the data.

    And I want to — my time is about up and I want to —

    Abe Fortas:

    But what do you consider the SEC’s role under the statute to be in the reorganization of this magnitude?

    William P. Simmons, Jr.:

    They are advisers to the Court and to the trustee, and they had been very helpful in a great many matters.

    Abe Fortas:

    Well, I want to be a little more helpful here —

    William P. Simmons, Jr.:

    They — I don’t — they —

    Abe Fortas:

    (Inaudible)

    William P. Simmons, Jr.:

    For some reason or other, the SEC here has made a kind of a crusade out of this case for these poor stockholders.

    We think that they should be just as concern or more concerned about the poor creditors because creditors come ahead of stockholders.

    And we’ve taken the position that the creditors are the real parties in interest.

    They want these compromises and they’ve approved this plan in overwhelming vote.

    The last count was about 98 or 95% approved and nobody disapproved.

    They want this plan.

    They want to get on with this reorganization.

    They don’t want to take the time and go back and fight these claims out.

    This is a practical matter that they are concerned with.

    I do want to conclude by just pointing out one thing regarding the failure of the trustee to bring suits to recover damages against persons accused of fraudulent practices in connection with transactions involving TMT stock.

    Petitioner’s brief makes a serious and unfounded charge against the trustee and against me.

    On page 30 of his brief, he says that for three years preceding 1965, trustee’s counsel for that — in 1965, trustee’s counsel for the first time admitted the other abandonment of these suits.

    Now — and on page 15 of petitioner’s reply brief, he repeats his charge in the following language.

    The trustee failed to disclose on the record to the stockholders or creditors or the SEC that a secret understanding was actually made in 1962 to suppress the suits and waive the setoffs.

    This was disclosed as to the suits for the first time in 1965.

    And what they’re referring to in 1965 is where in an answer to a question by Mr. Gonson of the SEC, he says there’s a contemplated — at all that the trustee of the estate would institute any litigation with respect to the Caplan mortgage transaction answered by Mr. Simmons, know that matter has been settled in the plan of reorganization.

    Now, I want to refer the Court to page 662 of the record, in record number 2, in which — in April of 1962 when we were beginning to consider this plan of reorganization, this is the report that the trustee and I made to the Court.

    As to the contention of the stockholders committee that there are causes of action against Caplan and Merrill-Stevens, which could result in recoveries beyond the amount of the claims, that trustee has been advised that such possibility is too remote to warrant the expensive litigation and to delay in reorganization.

    The trustee has filed two suits as a result of his 1960 investigation of the Caplan mortgage participants and others who had dealings with the form of management.

    One of these suits is against Joseph Abrams and others involved in the purchase of the property at Wilmington, Delaware.

    The other is against Eric Rath (ph), former president-organizer of TMT, recovers in these suits are uncertain amount and they are the only ones considered worthy of prosecution.

    William P. Simmons, Jr.:

    It was our opinion that in a reorganization case you have to look to the future and not to the past.

    The creditors wanted to get it on with reorganization and they did not want to waste the time of the — time would be necessary and the expense in prosecuting these all — suits in trying to punish all these people that may have been involved in the downfall of TMT.

    And this was our considered judgment and this was made a matter of record in connection with the hearings proceeding, the first consideration of the plan in 1962.

    Byron R. White:

    What happened to the Abrams in that suits?

    William P. Simmons, Jr.:

    We got a judgment against Mr. Rath (ph), the ringleader of the former management in the amount of a $131,000 in 1963 and we have not been able to collect 1-5 cent a piece on it.

    Byron R. White:

    How about the other one?

    William P. Simmons, Jr.:

    The other suit is still pending in the Southern District Court of New York.

    Any benefits that it gets come under the plan will go to the common creditors of the company under the plan of reorganization.

    So far, we spent a lot of money on that suit and so far, we haven’t gotten anywhere with it.

    It’s not over with yet, but we’ve not recovered anything with it enough.

    Now those are the two suits that we brought and we considered all the rest of them.

    And I’m not — brought anymore because we didn’t feel that they warranted — the merits of them didn’t warrant it, the expense was not warranted and the delay in the reorganization case was not warranted.

    Abe Fortas:

    That makes — see if I can clarify this in my on line, did there come a point of time at which the Court, the judge not the trustee, the Court, gave to the Stockholders Committee and the SEC an opportunity to present on the record evidence that it had with respect to claims that might be asserted against these — to a creditor party.

    William P. Simmons, Jr.:

    No, because the facts —

    No, because the facts with respect to those objections were well-developed in the various investigation that were made to be —

    Byron R. White:

    Yes, but that’s by the trustee.

    I’ve got the answer to my question.

    Thank you.

    William P. Simmons, Jr.:

    No, they were no.

    They were not.

    The rest of my time will be taken — of our time will be taken by Mr. Spitzer.

    Earl Warren:

    Very well.

    M. James Spitzer:

    Mr. Chief Justice —

    Earl Warren:

    Mr. Spitzer.

    M. James Spitzer:

    May it please the Court.

    It’s perhaps a searing emotional experience to sit at the counsel table of this Court and because one is an (Inaudible) trustee to find oneself receiving the phrasal and invective employed yesterday.

    I suppose if one could be objective about it, would be alleviated by knowing that everybody else connected with this proceeding whether it be the trustee, its counsel, the creditors, even to some extent, the District Court and even some members of the panel of the — the panels that sat in the Fifth Court of Appeals are included.

    Perhaps it mitigates, it doesn’t eliminate it.

    And if there’s any emotion in my argument, I hope the Court will indulge me.

    I appear solely on behalf of the Caplan mortgage claim.

    M. James Spitzer:

    Your Honors will find in the briefs which is so highly critical, there isn’t a word as to the nature of those claims, of that claim.

    Some $330,000 and fresh new money, it was paid for a note in that amount secured by two mortgages for plainly disclosed investors and for shares of stock having a described value of $49,500.

    A little over two-thirds of that money was immediately on the direction of the data transmitted to the (Inaudible) National Bank to pay for an installment of interest in principal on a maritime mortgage guaranteed by the United States Maritime Administration and thereby redounded for the benefit of the Government by reducing its liability.

    The greater part of the balance was used to clear liens and libels on other vessels to which it would now be subject.

    The claim presently would be something substantially, substantially in excess of a half million dollars with interest at a 6% rate provided for in the note.

    This has been settled for the sum of $250,000 with the interest subordinated to that of a general claim with no voice whatsoever in the reorganized corporation, except as a minority stockholder having roughly 3% of the outstanding stock.

    Let me it very plain irrespective of what the brief say.

    The plan is clear, the record is clear.

    We never sought, we never obtained and there has been no disposition of any claims against any participant.

    I appear here solely on behalf of the trustees.

    If the data or state desires to sue any individual participant, we have never blocked it.

    I want to be also clear on one thing.

    The position of the Caplan mortgage trustees from the inception has been plain.

    We immediately filed a claim.

    We made opposition claim, we said we were first mortgagees, subject and subordinate to no claims.

    For two and a half years, neither petitioner nor the SEC filed any objections whatsoever to our client.

    A plan of reorganization was promulgated which incorporated a compromise, not at our request.

    We have never once requested any compromise on our claim.

    We have manfully stood up and taken our position and read — and been ready to defend it.

    It was only after we petitioned for a leave to foreclose.

    When it was denied we went to the Court of Appeals.

    The Court of Appeals reversed, remanded and directed that we be satisfied.

    When the Court referred it to a special master, we took a second appeal.

    And during the pendency of that appeal, the trustee and the creditors requested that we compromise.

    We were prepared to accept the compromise or litigate.

    The matter was incorporated in a plan of reorganization which was approved and confirmed and let me make it plain.

    There was no objection of any kind to our claim at this point by anyone.

    When the plan was ready to be consummated, the SEC requested an investigation of our claim.

    We immediately consented in any form, manner or shape that was sought.

    There was an investigation that took place from January 29 to May 4, 1960.

    M. James Spitzer:

    It was conducted by the reorganization and trustee and his counsel and by four members of the staff of the SEC, two of their attorneys and two of their investigators.

    There was some 33 persons interrogated.

    There was some 2200 pages of testimony transcribed.

    There was some 60 exhibits that were introduced in evidence.

    And while we flatly disagreed with the conclusion of the reorganization trustee, at least he was fair enough to say that the Caplan mortgage trustees and the participants gave every possible cooperation, we testified everything that was asked for, we produced every record that was sought.

    May I say to Your Honors that when the Court originally passed upon the plan of reorganization incorporating our compromise of our claim it had before it everything that the combined and cumulative efforts of counsel for the trustee, counsel for the SEC, counsel for the creditors and counsel for the petitioner could bring before the Court.

    Now in one respect, I see I have only five minutes and I’d hope I’d have more.

    In one respect I must disagree with Mr. Simmons with respect to our claim.

    The charges of fraud whenever refuted as what stated yesterday, we filed a claim, there was no objection filed.

    Now, let me tell you exactly what transpired and there — what hearings with respect to our claim before the Court.

    On April 24th, 1962, after the plan was — the present plan was prepared, eight days before it was submitted for approval, counsel for the petitioner interrogated the trustee with respect to outstanding litigation and claims that would be litigated and it went into causes of action, patent claims, the Wilmington transaction and Merrill-Stevens.

    And I say to Your Honors that not one question was propounded with respect to any defense to our claim or to any claims against our participants.

    Eight days later, the plan came up for approval.

    Again, petitioner’s counsel interrogated.

    There wasn’t again one question asked with respect to our claim and this was when it was before the Court.

    Now with respect to the SEC on the approval, the SEC’s counsel questioned the trustee as to what were his reasons for approving this compromised provision.

    The Court stated that it had a jury waiting to come in, it had another case ready for the afternoon.

    And if there was time desired to review this matter, it would set the matter down for another day.

    At this point, SEC counsel stated and I quote from record 2, page 283, “speaking for my self Your Honor, I have concluded”.

    Now it is asserted in the reply brief that we imply that they were satisfied.

    I make no implication.

    Satisfied or not, they had the opportunity.

    They were requested by the Court, “If you want this matter set down for a day certain, we will do it” but they didn’t want it.

    What they wanted really was and they then requested the trustee of state, how did they arrive at the compromise which he stated.

    The Court then submitted a memorandum at a later date that there was insufficient on the record of proof.This was not the end of it.

    This was in 1962.

    The matter went up to the Court of Appeals and at that time, the counsel for the trustee set forth the various reasons for the compromise of our claim.

    There was a reversal, as Your Honors know, because of the priority status of the Government’s nontax claims.

    When the matter was remanded and came before the Court again, on November 4th, 1964 SEC counsel inquired as to the general manager whether any attempt had been made to negotiate a more favorable settlement.

    It was answered.

    M. James Spitzer:

    No effort whatsoever was made to impugn the settlement.

    They disagree with the reasons for the settlement to request us to appear and testify and we’ve been ready on any and every occasion or to produce any testimony whatsoever.

    There was a further hearing on January 19th, 1965 where SEC counsel inquired the reorganization trustee’s counsel as to the status of litigation even with respect to the Caplan mortgage claim.

    Again, there was no request for any interrogation, any criticism whatsoever with respect to this compromised provision.

    And during all these period, petitioner’s counsel which portrays itself fulfilling such a heroic role in uncovering all these matters stood there silent (Inaudible).

    No interrogation, no inquiry whatsoever.

    I say to Your Honors that the contention that this record is inadequate or that the District Court acted improvidently with respect to our claim and I am here only on behalf of our claim is absolutely incorrect.

    And may I make it perfectly plain that the United States Government, which is the — one of the largest creditors, has not objected to this provision.

    And may I also add one further thing with respect to the Government.

    In 1959, the United States Department of Justice, at a hearing before the Court, set forth on the record that it had made an investigation of our claim that it had interrogated our representatives.

    With our consent had gone through all books, records and documents and were thoroughly satisfied with respect to this claim.

    I know that I can’t go further that I had wanted to present certain — the aspect of the two, Your Honors.

    I merely want to point out to you that we are in this position at this time.

    We have compromised twice, thinking that we had eliminated the problem, apparently we haven’t.

    We have surrendered our mortgages at the direction of the District Court.

    We no longer even have those.

    Our property is now subject and subordinate to a mortgage that was issued to fulfill and consummate this plan of reorganization to that mortgage.

    Neither the SEC nor the petitioner objected.

    We are afforded in an absolutely untenable position as a result of no efforts on our part.

    We have done nothing to deserve this situation today.

    We have been prepared to substantiate our position.

    We have filed our claim.

    We have been ready to fight and we have never been afforded the opportunity to do so.

    Abe Fortas:

    To what conclusion does all that leads you in terms —

    M. James Spitzer:

    I’m sorry sir.

    Abe Fortas:

    To what conclusion does that leads you in terms of what this Court intended?

    I should suppose for example, your position is that — your claim was thoroughly considered before the Court and everybody had an opportunity in exhausting this opportunity to say what he had to say before the Court.

    Supposed that we’re not true with respect to the Merrill-Stevens’ claim.

    If that were not true and suppose that this Court should conclude, I have no idea whether it will (Inaudible), that the absence of those hearings as surprisingly hears with respect with the Merrill-Stevens’ claim is a violation or the correct rule of procedure, then don’t we have to set the whole plan aside?

    M. James Spitzer:

    It would seem to me, Mr. Justice Fortas, that as a mater of fundamental equity here, our position should be preserved.

    Abe Fortas:

    How could that —

    M. James Spitzer:

    We cannot —

    Abe Fortas:

    Yes.

    What I’m asking is — I appreciate your argument and of course the clarity of it, whatever I asked you is, how can we do it?

    What do you — asking us to do?

    M. James Spitzer:

    Well, it would seem to me that this matter, at least with respect to our claim having been compromised and the adjusted therefore full and complete and adequate hearings in the record, that compromise should stand.

    We cannot at this point be restored to our position.

    Our mortgages cannot be reinstated because that may now be intervening equities, which no court I think that it could eliminate.

    Abe Fortas:

    I understand that.

    M. James Spitzer:

    And it seems to me irrespective of what may have and I don’t know what happened or what the Court’s position will be but we should be preserved in the fulfillment of the compromise which we have in good faith carried out.

    Abe Fortas:

    But you don’t know how we could do it?

    M. James Spitzer:

    You’re the justice of the Supreme Court and I am not.

    I’m not (Inaudible) —

    Abe Fortas:

    I understand that but the —

    M. James Spitzer:

    This is the first laugh I’ve gotten out of this proceeding so forgive me.

    Abe Fortas:

    I understand that but we’re trying to find out whether you — your verifying that statement here ended in a specific conclusion of whether it was an admonition, has to do the right thing.

    M. James Spitzer:

    Your Honor, I am not so presumptuous as to admonish this Court.

    I do believe that under Section 27, there has been a compromise made.

    It has fulfilled all the requirements and if other provisions of the plan do not stand, this compromise should be honored and respected and at least built in within any type of agreement.

    Potter Stewart:

    Do you have the — you’ve been paid the amount of your settlement, I take it?

    M. James Spitzer:

    Yes sir.

    Potter Stewart:

    You have the money?

    M. James Spitzer:

    Yes sir and we are holding the money.

    Potter Stewart:

    And setting aside the plan isn’t going to get to — isn’t going to make you — give that money back —

    M. James Spitzer:

    Except Your Honor please, if I may intrude.

    What do we do to preserve our situation in enforcing it in any subsequent proceeding?

    We no longer —

    Potter Stewart:

    I understand —

    M. James Spitzer:

    — have our mortgages and they’ve been satisfied —

    Potter Stewart:

    I understand that.

    M. James Spitzer:

    — and they’re probably has been subordinated.

    Potter Stewart:

    I understand that.

    M. James Spitzer:

    So how can we preserve our position in any further proceedings?

    We are at this point not in the position where we can assert the lien claim that we had.

    And I don’t think that there is the power in this Court or any other court to restore it now.

    Byron R. White:

    Oh, I think that that’s true but do you have the $250,000?

    M. James Spitzer:

    We have $250,000, yes, sir.

    Yes, sir.

    Byron R. White:

    As long as you keep it, you’re satisfied.

    M. James Spitzer:

    Yes sir.

    We compromise it and we’re prepared to stand on that compromise.

    Potter Stewart:

    Well did somebody tried to get a background, do you got it?

    M. James Spitzer:

    Yes, but on the other hand, we don’t want (Voice Overlap) —

    Byron R. White:

    You’d like to know that nobody could.

    M. James Spitzer:

    I’d like to know that I’m not going to be in violation of any order of a court.

    I’ll be subjected to further proceeding.

    Yes, sir, this is also important to us.

    Earl Warren:

    Very well Mr. Spitzer.

    Mr. Langbein.

    Irwin L. Langbein:

    Mr. Chief Justice and may it please the Court.

    I’m going to reply only very briefly to Mr. Spitzer’s discussion.

    Earl Warren:

    A little louder if you please.

    Irwin L. Langbein:

    I’m going to reply only very briefly, sir to Mr. Spitzer’s discussion.

    Because most of it is what I characterized yesterday as bickering in the responding brief and also answered by more bickering I’m afraid in our reply brief.

    We have attempted to set out specific citations to the record that places of which we think Mr. Spitzer is in error in his view of what was actually in the record.

    Hugo L. Black:

    In what way?

    Irwin L. Langbein:

    I say, sir that Mr. Spitzer cannot come here and talk about equities when all compromises, when our position on it, Mr. Justice Black, is not on the merits of the mortgage.

    He may have a good mortgage; he may have a bad mortgage.

    Our position on it from the first was that he was not or his clients were not in any position of being able to assert their commercial rights under the mortgage because they were in fact acting as cloaks for people who wrecked this company.

    And that no matter what the commercial situation with respect to the mortgage, the trustee at first brought that very bitterly that they cannot estop anybody because they are covers for frauds.This was a position that we wondered about to begin with.

    Irwin L. Langbein:

    Very early in the proceedings, Mr. Spitzer was asked in open court, “Is there is Mr. Joe Abrams interested in or who is a part of that group?”,referring to his settings.

    Mr. Spitzer: “There is no Joe — Mr. Joe Abrams in our group.

    He has an interest in I believe in — no there is not.

    No.”

    So, at that point, there was a disclaimer of any interest by — in the group by the man who was primarily along with his other client, Mr. Shaffer, so the trustee found in his ultimate investigation the prime record of this company.

    It was only when we turned up evidence which we tended to the trustee in which he rejected that there really was a Joe Abrams behind this and when the SEC turned up more evidence that ultimately the trustee was forced to set aside his first plan which it turned the whole company over to these people.

    Now, this is the reason that we say that they cannot be in a position of saying, “We’re innocent equity people here.

    We have equities with us.

    We were sucked into a compromise.”

    We say that they were sucked into a compromise, the terms of that compromise whenever fully disclosed.

    The basis for that compromise was never fully disclosed as I argued yesterday.

    What right therefore do they have to sit here innocently and say, “Everybody is estopped?

    Byron R. White:

    Didn’t you have —

    Irwin L. Langbein:

    We made a deal.”

    Byron R. White:

    Didn’t you have plenty of opportunity at various stages in this proceeding to present whatever fact to the Court you wanted to, that you wanted to?

    Irwin L. Langbein:

    With respect to —

    Byron R. White:

    To this particular settlement of the Caplan, the mortgage claim?

    Irwin L. Langbein:

    We didn’t know what the detail facts of the settlement were.

    We had presented all the facts of the fraud.

    We had presented or the trustee had finally (Voice Overlap) —

    Byron R. White:

    Did you have an opportunity to ask the trustee on the stand or —

    Irwin L. Langbein:

    Yes we did, Your Honor.

    Byron R. White:

    Did you ask him?

    Irwin L. Langbein:

    Yes, we did.

    Byron R. White:

    So did you —

    Irwin L. Langbein:

    There was a passage (Voice Overlap) —

    Byron R. White:

    — did you pursue it or did you find out all you wanted to know?

    He didn’t —

    Irwin L. Langbein:

    No.

    Byron R. White:

    — refuse to say — tell you, did he?

    Irwin L. Langbein:

    No, he misleds.

    There’s a passage in the record in which he was (Voice Overlap) —

    Byron R. White:

    But he still had an opportunity to —

    Irwin L. Langbein:

    Yes sir.

    Byron R. White:

    — question him, find out all you wanted to the —

    Irwin L. Langbein:

    Well, let me just read what happened here, sir.

    He was asked regarding the alleged compromises of the Shaffer-Spitzer mortgage claim and the Merrill-Stevens claim, would you give us some indication as to the basis of this compromises.

    Now this was after the facts were out, that there was a fraud here permitted by their Shaffer-Spitzer principle.

    Earl Warren:

    Could you please talk into the —

    Irwin L. Langbein:

    I’m sorry, sir.

    “I’ll be glad to,” he says, “I’ll be glad to”.

    And on the next page, he’s asked again about Shaffer-Spitzer and he says, “The compromise of a claim, the Caplan claim, was worked out between the attorney for the group, my attorney and myself was done in conference; all three of us had with the Court, completed after deliberations, negotiations, submitted to the Court, approved by the Court.

    That’s the way we came about to reach that compromise.

    So he states where it happened, “in chambers” —

    Byron R. White:

    Well, why didn’t you (Voice Overlap) —

    Irwin L. Langbein:

    “Who was there” —

    Byron R. White:

    Why didn’t you pursue it?

    Irwin L. Langbein:

    We didn’t pursue for the reason that the Court at that very point was telling everybody, “Look, I have a jury coming in here.

    I can’t sit around here all day and listen to wrangling about this.

    You can submit a memorandum.”

    And the SEC submitted a memorandum in which it raised this very point and we joined in the memorandum.

    Byron R. White:

    So you objected the approval of the — to the approval to compromise on the basis that — on the basis stated by the trustee?

    Irwin L. Langbein:

    I don’t understand the question.

    Byron R. White:

    Do you — as ultimately objected to the compromise?

    Irwin L. Langbein:

    We objected to it beforehand and we were —

    Byron R. White:

    And in the memorandum that you joined in further objection.

    Irwin L. Langbein:

    Further objections.

    We objected to it when the plan first came out.

    We said you can have a plan with these compromises in them uninvestigated, with the basis not stated.

    Then when Mr. Gonson, SEC counsel, made this direct inquiry, “what’s the basis?”

    Irwin L. Langbein:

    I read the answer.

    And on — we said the same thing and made these objections again not alone at approval time, at a confirmation time, at appeal time on both the version of the final plan that was — what we call the second plan and the version of plan that we call (Voice Overlap) —

    Byron R. White:

    Well, did you ever ask the judge to set the matter down for a further hearing?

    What — in that memorandum the SEC filed within — which you joined.

    You objected to the compromise and there hadn’t been inadequate here — basis for — that you asked for —

    Irwin L. Langbein:

    We objected to all —

    Byron R. White:

    — further — for a further hearing?

    Irwin L. Langbein:

    We objected to all of these points.

    I can’t tell the Court that we said that there had to be a further hearing after there was an order of approval came out.

    We’d raise the same points again and again and again, we’d ask the hearings on them again and again and again particularly with respect to the Merrill-Stevens claim and we had insisted throughout this proceeding.

    One further point should be mentioned here.

    We are a committee.

    We are intended to be holding a watching brief.

    It is our responsibility to the people whom we represent, some 7000 stockholders, who have paid many millions of dollars under this fraudulent scheme to float stock, how much of it reached the company ultimately.

    It doesn’t appear in the record but we know from the extent of the record that has been made, a good deal of it, many hundreds of thousand dollars of it were (Inaudible).

    Our position here is to point out what needs to be done, to suggest what needs to be done, to try and do it if it isn’t done.

    But when we are blocked, at that point it becomes the Court’s own responsibility under the decisions of this Court to take an affirmative responsibility for the fairness of a plan which is his duty under Chapter X.

    Whether we object before, during or after and we did.

    We think we’ve done all that we needed to do as the Court’s responsibility and the trustee’s fiduciary responsibility.

    Let me turn more directly now, if I may, to Mr. Simmons’ position.

    I’d like to address myself to something he said at the very start of his discussion which he said it’s going to be necessary for this Court to read all seven volumes of this record.

    I’m afraid as I said yesterday that it was going to be necessary for the Court to read a little more of this record than I would like to have read just because of these matters of detail of the fact.

    But none of it is the kind of thing that this Court ordinarily refuses to read by way of looking over to see whether or not a District Judge has made appropriate findings of fact on an issue presented to him.

    Of course there are disputes of fact.

    Mr. Simmons insists that there never wasn’t a — any real charges of fraud by us against Merrill-Stevens.

    And all we can do is ask the Court to read our specifications in which we say that they joined themselves in with the basic Shaffer-Spitzer we call it, it could just as well be called Abrams and Shaffer because they are the ultimate defrauders.

    Mr. Shaffer and Mr. Spitzer in our view are merely gnawing close for Shaffer himself and Abrams as himself on it.

    We objected to the claim on fraud grounds because there were misrepresentation as to this Carib Queen as to her speed, her performance, whether or not she’d been mortgaged out.

    All these matters that were essential to the fraud.

    This, the Court will have to read.

    Irwin L. Langbein:

    Likewise, I think the Court is going to have to just see whether I’m right or whether Mr. Spitzer is right when he says both in his brief and here that the group behind the Shaffer-Spitzer mortgage was “plainly disclosed”.

    The briefs themselves operators and indexed to the record.

    But the most important thing that I’d do want to state with respect to this question of how much you have to read is really an answer to the question that I started to answer yesterday when Justice Fortas asked me about it.

    But what do we want here?

    It’s our position that nothing that we want is going to require this Court to review and reverse determinations of fact made by the District Court even where we asked for review of something that is a mix batch in effect in law, the matter of insolvency evaluation.

    What we’re objecting to there is the adoption and the enforcement of a rule of law by the District Court which we say is in — just counter distinction to the rules of law that this Court had always enforced and said in the area of evaluation.

    That it is necessarily a matter of future, I think that it is necessarily a matter or probability and that all evidence which now exists bearing on the future earnings of the company must be presented to the Court.

    And for that reason we say that it is not necessary to discuss even on this one question which might be of question of fact, any of the detailed underlying facts because the facts are really admitted in here.

    The disputes of facts are fringed disputes.

    The facts of the case are undisputed on that, that you cannot value we think a company, which during the reorganization has grown from 300 to 600 trailers from three to five ships as this Court — the District Court insisted it be valued.

    As it is now, a three-ship company, when their turning away business all the time and find new ships and planning improved ships and spending estate money on those plans and spending a estate time on those plans, this is a matter of law, this is not a matter of fact.

    Similarly, on the question whether there should be a full investigation, it is a matter of law we say.

    Four courts we’ve cited in the brief, four of the Circuits have said that you’ve got to have a full investigation on the record instead of the kind of investigation that was had here off the record with the trustee even turning down and objecting to us and blocking us when we wanted to get discovery of some of the most important facts here that we had found in third-party hands.

    Similarly, when we say that there must be a full disclosure of the basis of compromise, it is a fact that the compromise basis was not stated on the record and three more of the Circuit Courts which we’ve cited in the briefs have said this.

    It’s our view that it’s this Court’s function and responsibility in response really to Justice Fortas’ question as what we want here, to make it clear that the law is the same in the Fifth Circuit.

    And the law should be the same throughout the country so that we don’t have the danger of what happens, what is traditionally happened.

    What caused Chapter X, people without any supervision, running bankruptcies to suit themselves, friendly trustees, private deals.

    Another thing that we think the Court must enunciate as a rule of law here is that the trustee must put under an affirmative duty to bring in to the record all the evidence that there’s on valuation.

    Mr. Simmons, I’m sure inadvertently made a mistake — meant there when he said, that our own expert, the committee’s expert valued this property at only $4,500,000 as a going concern value.

    There is a passage in the record.

    I could quote it but I will cite it.

    We’ve also cited it on the brief at pages 246 to 248 of the record that we call Roman II here in which the thrust — in which our officer says — our — I’m sorry.

    In which our expert says that the officers of the company, the trustee, have not furnished him with only information he needs to determine how much higher, how much higher than $4,500,000 it should be.

    Our expert did not make a valuation in terms of — this is the figure, he said that this is the minimum figure and the reason I haven’t been able to get a higher figure is because the trustee can’t — wouldn’t furnish me the information that’s necessary.

    That’s in the record and I have discussed —

    (Inaudible)

    Irwin L. Langbein:

    — and placed into the brief a number of other passages in which the trustee withheld information from a — certainly one thing must be done here by way of remedy.

    The trustee must be instructive.

    Any trustee must be instructed that it is his duty to supply all the information.

    Another thing that we need that doesn’t require any statement, any controversy of a fact, fewer matter of law, that there must be a ruling and we think that that the ruling should be the one that is set out in the SEC’s brief that defrauders’ stockholders do have a right to claim as creditors.

    Irwin L. Langbein:

    That question was never ventilated below in the Court of Appeals because of the fact that the District Judge erroneously held and we think this is again holding as a matter of law that we were barred from raising the question because of laches.

    We say —

    Hugo L. Black:

    Because of what?

    Irwin L. Langbein:

    Sir?

    Hugo L. Black:

    Because of what?

    Irwin L. Langbein:

    Of laches, that we were too late in filing our claim.

    We say on that point that laches under the doctrines of this Court, and we’ve cited the (Inaudible) case in our brief that laches is a question of fact and that the District Judge has no authority as a matter of law, not as a matter of fact, to make a finding that we were in laches until there’d been a hearing on that question determining what would the excuses for our delay, what were the consequences, who was hurt by our delay as well as did we in fact delay.

    This is not a matter of bickering over facts.

    This is a matter of acting on agreed facts, facts which are indisputable in the record.

    There must also be, we say, by way of remedy here, a real review under Section 221 (5) which requires the judge to look over the whole cause of the proceedings and determine before he approves the plan, before he confirms it rather, that there has been an independent trustee.

    This is not a fact question.

    We think we have developed the facts which demonstrate that this trustee had been acting under conflict of interest.

    The question is not whether he was corrupt but as this Court had said whether he had the opportunity for corruption and whether he had placed himself in a position where it can’t be told, it can’t be determined what he has done.

    It — none of this is a question of fact.

    The trustee, we say, must go.

    It is not important really whether the trustee has the job as president of this company.

    What is important is that whether by a director’s instruction in the mandate, unmistakable language in the opinion, it must be made plain that the plan must be vacated and that any other plan by a man who has acted in conflict of interest will also be vacated.

    This is a conclusion that we reached in our brief when we asked for relief.

    The SEC which has supported us throughout in this proceeding long before the particular questions that Mr. Ferber argued yesterday were raised.

    The SEC had reached the same conclusion and the conclusion of its — stated in somewhat differentlanguage.

    It is our view that all of these things are things that the Court can do, the Court can order done in a mandate or indicate must be done in an opinion.

    That’s what’s necessary to claim this reorganization now.

    I would like to refer very briefly to some of Mr. Simmons’ particular contentions that there was little dispute as to the amount of the Merrill-Stevens claim.

    There was a dispute as the amount of the Merrill-Stevens claim.

    The SEC objected to its allowance.

    At Roman II 1094 of the record that the SEC asked for a hearing on our particular objections to the Merrill-Stevens claim.

    It said that after those new specifications at large charging fraud were in the record that there must be a hearing on it.

    Finally, on this detailed points, it is important just to notice with respect to the suits, the objections to the various claims, the suits that were dropped, but what we’re objecting to is that although each plan said that suits are reserved, all suits are reserved, all causes of action reserved that the trustee did not just make on the advise of his counsel that judgment of these were not worthy of prosecution, but that he made a deal not to prosecute them; that it was part of the deal and it was only disclosed in part three years later and another part four years later.

    This we say is no way to run a reorganization.

    Hugo L. Black:

    Is that what you claim you could prove that you had a new (Inaudible)?

    Irwin L. Langbein:

    Oh, we think that that —

    (Inaudible)

    Irwin L. Langbein:

    I think that passage of it, Your Honor, is already in the record.

    I know it’s in the record.

    We’ve cited it in the record particularly in our reply brief when there was a contention that everything was disclosed at the Shaffer-Spitzer.

    We’ve cited the passages in the record in our reply brief.

    One final point on the law of the case, Mr. Simmons has made again I think in inadvertent statement which he said that the plan was returned at the time of the second appeal only, and I’m quoting him, for determination of its feasibility.

    He is I think quoting but the District Court said that it was returned only for determination of its feasibility.

    On the third appeal whether its contention was made that the law of the case covered everything and I quote from the third appeal 364 F.2d at 936, where the District Court said the decisions of the appellate court sent the plan of reorganization back only for determined feasibility of the plan.

    The Fifth Circuit said on the third appeal, “We do not agree but hold that this Court’s reversal of the order of confirmation left open those issues not in terms discussed and decided”.

    The only issue that was discussed and decided with respect to us was the matter or decided against us was the prophylactic barring of the trustee.

    This is why we say that the Fifth Circuit did not exercise its supervisory function and why this Court has to step in and exercise its supervisory function because on each of the first two appeals where we had raised all almost of these questions, although the plans were set aside and this is important, perhaps I didn’t make this clear in response to your question yesterday, Mr. Justice Harlan.

    On our first appeal of claim was set aside and our second appeal, the claim was set aside but they were set aside on collateral grounds which the Fifth Circuit did not find necessary to consider the particular questions that we had raised except by indirection where it said that the Court could act, the court below on the first appeal could act on the findings ofthe trustee had belatedly made with respect to the Shaffer-Spitzer and could set aside the first plan for fraud.

    This is the reason why we’ve brought the case here under the supervisory power primarily and this is the reason why we say that there can be a mandate and there can be instructions and there can be an opinion that without going into details bickerings about petty facts here, acting only on what is claimed in the record will clean up reorganization again.