Appeals from the District Court of the United States for the Southern District of New York.
Before SWAN, AUGUSTUS N. HAND, and CLARK, Circuit Judges.
Upon a creditor's bill filed August 26, 1932, receivers were appointed for the Interborough Rapid Transit Company and on September 6th the receivership was extended to the Manhattan Railway Company.*fn1 The properties involved comprised the Subway Division, consisting of City owned lines, mainly underground, operated by Interborough under contracts with the City, and the Manhattan Division, consisting mainly of elevated lines owned by Manhattan and leased to Interborough in 1903 for a term of 999 years from 1875. Under the Manhattan lease Interborough was required to pay taxes, interest on all Manhattan bonds, a small annual sum for maintenance of Manhattan's corporate existence and 7 per cent. dividends per annum on manhattan's capital stock. A guaranty by Interborough to pay such dividend rental was endorsed on each certificate of Manhattan stock. By a readjustment made in 1922 this guaranty was modified with respect to a great majority of the stock. As the receivership dragged on it became clear that the solution of many of the problems arising between Interborough and Manhattan and their respective security holders depended on a solution of the question of the right of Interborough's receiver to disaffirm the burdensome Manhattan lease. The question came before this court in Murray v. Roberts, 2 Cir., 103 F.2d 889, and on April 17, 1939, an opinion was handed down holding that because of certain franchise obligations to the City the lease could not be disaffirmed unless, as a result of negotiations with the City, these obligations could be performed by some means other than affirmance. This decision established the City's strategic position in the affairs of the companies and enabled it to prepare to press its unification objective. For many years both before and during the receivership the problem of improving rapid transit within the City by some plan of unification had been under consideration by the Transit Commission, a State agency, and by the City authorities.See N.Y. Law 1921, chap. 134, Public Service Commissions Law. On January 1, 1939, the Fertig Amendment to the State Constitution, art. 8, § 7a, became operative, having as its object the promotion of unification. It authorized the City to issue securities outside of its debt limit for the purpose of acquiring transit securities as well as transit facilities. Fortified by the Fertig Amendment and the decision in Murray v. Roberts, supra, the Transit Commission and the Mayor began negotiations with representatives of various classes of Interborough and Manhattan securities. These negotiations resulted in the summer of 1939 in the proposal by the Transit Commission and the City of a Plan of Unification which was accepted by a great majority of the security holders within the time specified in the Plan. The Transit Commission declared the Plan operative by resolution adopted November 22, 1939. It was consummated on June 12, 1940. By its terms the various classes of security holders of the two companies were offered Corporate Stock*fn2 or cash (at the City's option) in amounts equal to stated percentages of the unpaid principal amount of their securities. The percentage payments they were offered and the percentage of the holders of each class of the securities who assented by depositing their securities appear i in the following table:
Amount of Percentage Percentage
issue out- Name of of principal deposited at
standing. Security to be paid. Nov. 22/39 June 4/40 May 1/41
$97,000,000 Interb. First 5s 82 1/2 76.66 94.76 99.62
28,700,000 Interb. Sec. Notes 87 1/2 80.65 95.29 99.68
40,600,000 Manh. Cons. 4s 82 1/2 83.27 97.56 99.81
4,500,000 Manh. 2d M. 4s 50 83.27 84.98 88.42
43,500 Shs. Manh. 7% stock 35 27.55 82.14 96.26
556,500 Shs. Manh. Mod. stock 19 63.27 ...