Securities and Exchange Commission v. American Trailer Rentals Company

PETITIONER: Securities and Exchange Commission
RESPONDENT: American Trailer Rentals Company
LOCATION: United States Post Office and Courthouse

DOCKET NO.: 35
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Tenth Circuit

CITATION: 379 US 594 (1965)
ARGUED: Nov 10, 1964
DECIDED: Jan 18, 1965

Facts of the case

Question

Media for Securities and Exchange Commission v. American Trailer Rentals Company

Audio Transcription for Oral Argument - November 10, 1964 in Securities and Exchange Commission v. American Trailer Rentals Company

Earl Warren:

Number 35, Securities and Exchange Commission, Petitioner, versus American Trailer Rentals Company.

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice, May it please the Court.

This case which is here on a writ of certiorari to the Court of Appeals for the Tenth Circuit involves the standards to be applied in determining whether the reorganization of a financially distressed corporation should be conducted under Chapter X of the Bankruptcy Act or under Chapter XI.

I'll discuss in some detail, the differences between these two chapters that suffice at this point to say, that Chapter X is the provision providing generally for what are known commonly as ‘big large scale corporate reorganizations'.

And Chapter XI provides a summary procedure, by which the unsecured debts of a debtor maybe readjusted.

And there is a provision of the Bankruptcy Act, Section 328, which authorizes the Securities and Exchange Commission or any party in interest.

When a proceeding has been filed for an arrangement under Chapter XI to move the District Court to dismiss the proceeding on the ground that the proceeding should have been brought under Chapter X and this Court held many years ago in the United States Realty case, which is the landmark decision in this field that these two provisions of the Bankruptcy Act are mutually exclusive.

And this case arises out of the District Court's denial of such a motion by the Securities and Exchange Commission.

The specific question which is presented in this case, which has not been before the Court before, is whether when you have a proceeding which involves the adjustments of the rights of public investor creditors, I want to make that explicit.

These are people who have loaned money to the corporation, members of the public who have a creditor claim.

The question is when you have a proceeding under which the rights of those public investor creditors are to be cut down whether such a proceeding maybe had under Chapter XI or whether as the Commission contends only under Chapter X.

Byron R. White:

So, you're embedding that category of the public -- the investor creditor or is that pretty well grounded in the cases?

Daniel M. Friedman:

Well, I don't -- Mr. Justice, I don't think we're embedding it, it's a phrase and perhaps it has not appeared before --

Byron R. White:

Yes.

Daniel M. Friedman:

But this --

Byron R. White:

But this is embedded, you are distinguishing between one creditor and another there?

Daniel M. Friedman:

Well, yes.

We're distinguishing between the ordinary commercial trade creditors, who do business with the company, who are informed sophisticated businessmen and the so-called investor creditors, who put money into a business in the hope of getting a --

Byron R. White:

Chapter XI should never be used to conflict an arrangement with the investor creditor?

Daniel M. Friedman:

That is our position.

We think the basic purpose of this chapter is to accomplish only arrangements with trade creditors.

That when investor creditors are involved, we think that the whole statutory scheme is actually developed caused for the invocation of the protective procedures in Chapter X for the benefit of public investors.

William J. Brennan, Jr.:

But, this may be the point, investor creditor, is this a widespread phenomenon, is this a unique kind of suit or?

Daniel M. Friedman:

Well, the arrangement in this case is very unique, but investor creditors are quite frequent, public debentures, public bond holders, these are the categories that we mean as investor creditors.

I know of no case that involves the facts of this --

William J. Brennan, Jr.:

So, is this is an ordinary unsecured -- this debenture does not, holds no security and this is the kind of thing that would reach.

Daniel M. Friedman:

That's correct.

William J. Brennan, Jr.:

Your rule would reach.

Daniel M. Friedman:

That's right.