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CHICAGO TITLE & TRUST CO. v. FOX THEATRES CORP.

December 2, 1959

CHICAGO TITLE & TRUST COMPANY, Complainant,
v.
FOX THEATRES CORPORATION, Defendant. Application of Kenneth P. STEINREICH and Leopold Porrino, as Trustees of the Assets which were of Fox Theatres Corporation, and on behalf of the beneficiaries of their trust, comprising the creditors and stockholders of Fox Theatres Corporation, now known respectively as Preferred Participants and Participants of said trust, Petitioners, v. STERLING NATIONAL BANK & TRUST COMPANY, as assignee of Frank D. Lisle, Alvin J. Schlosser and Louis A. Mahoney, constituting the Noteholders' Protective Committee for Five-Year Secured 6 1/2% Sinking Fund Gold Notes of Roxy Theatres Corporation, Respondent



The opinion of the court was delivered by: BRYAN

The hoary equity receivership in which this application is made was commenced in this court in 1932. Pursuant to a plan of realization confirmed by the court on January 30, 1939, all assets of the receivership and of Fox Theatres Corporation were transferred to and vested in trustees under a deed of trust for the benefit of creditors and stockholders for the purpose of liquidating, realizing upon and distributing such assets. The deed of trust pursuant to the plan, executed as of February 24, 1939, vested administration and enforcement of the trust in the Supreme Court, New York County. The instrument was filed with the New York County Clerk, and duly designated trustees have been carrying out its terms under the supervision of the New York Supreme Court ever since.

In Chicago Title & Trust Co. v. Fox Theatres Corp. (Steinreich v. Schinasi), D.C., 164 F.Supp. 665, I pointed out that the trust has gone on for some nineteen years and that none of the Fox assets have been in the possession, custody or control of this court or its officers since the trust became operative. This court no longer has any jurisdiction over this equity receivership per se. However, since allegations were made that frauds had been committed upon this court in the course of the receivership, through the corruption of its own officers, certain proceedings in connection with the receivership have continued to be conducted in this court in the exercise of its inherent power to ferret out and rectify frauds committed upon it.

 None of such allegations of fraud are in any way involved in the present application which concerns a claim of a noteholders' protective committee for five-year secured 6 1/2% sinking fund gold bonds of Roxy Theatres Corporation which was allowed in the sum of $ 760,000 in the Fox Theatres equity receivership as long ago as 1937.

 Petitioners are the trustees of the Fox Theatres realization trust. Sterling National Bank & Trust Co. is named as respondent in its capacity as assignee of the Roxy noteholders' protective committee, and as trustee for such noteholders. In that capacity, Sterling is the holder of a preferred participating certificate in the Fox Theatres realization trust representing the noteholders' protective committee's allowed claim for $ 760,000. Payments on the claim made from time to time have totaled $ 258,400, or some 34% of its face amount.

 Now, more than twenty years after the Roxy noteholders' claim was allowed in the equity receivership, and almost as long since the assets of the Fox receivership were transferred to the realization trust under the jurisdiction of the New York Supreme Court, petitioners claim that they are entitled to have this court enter an order in the moribund equity receivership action which (1) adjudges that Sterling and the Roxy noteholder beneficiaries have received full payment, satisfaction and discharge of all claims against Fox Theatres Corporation and are not entitled to any further payment or distribution upon such claims or upon the participating certificate representing them; (2) grants reconsideration of the Roxy noteholders' allowed claim for $ 760,000, and upon reconsideration directs that such claim and the participating certificate representing it be cancelled and expunged; and (3) directs that Sterling repay to the Fox Theatres realization trust the sum of $ 258,400 thus far received by the Roxy noteholders on their claim by way of distribution.

 Respondent Sterling has answered the petition denying certain of its allegations, alleging that it is not the beneficial owner of the claim for which it holds the participating certificate, and alleging that this court lacks jurisdiction of the subject matter of the petition except in so far as it seeks reconsideration of the claim.

 Respondent now moves to dismiss the petition for failure to state a claim upon which relief can be granted.

 While its present motion does not properly raise the defense of lack of jurisdiction over the subject matter pleaded in its answer, it is plain to me that this court has no jurisdiction whatsoever over that portion of the application which seeks relief in the nature of a turn-over order for the repayment of monies thus far paid to Sterling and its predecessors on account of the claim allowed in the Fox Theatres receivership. See Chicago Title & Trust Co. v. Fox Theatres Corp. (Steinreich v. Schinasi), supra. Moreover, I have grave doubts as to whether petitioners' request for reconsideration and expungement of the claim can be even considered by this court at this late date and in the present posture of the proceedings. However, the application for reconsideration is patently without merit and could not be granted in any event. Since all else in the application is dependent upon granting the prayer for reconsideration, disposition of this phase of the application will finally dispose of the whole matter.

 The circumstances which led to the allowance of the Roxy noteholders' committee's claim at the sum of $ 760,000 in the equity receivership are as follows:

 In 1927 Roxy Theatres Corporation, a New York corporation, which built and was operating the Roxy Theatre, required further financing. Over 70% of its common stock was owned by Fox Theatres Corporation. An issue of five-year secured 6 1/2% sinking fund gold notes in the principal sum of $ 2,500,000, to mature on July 1, 1932, was authorized by Roxy and was underwritten by Halsey Stuart & Co., Inc. On July 23, 1927 Fox Theatres Corporation entered into an agreement with Halsey Stuart, the underwriter, that upon any default on the notes by Roxy it would purchase at par, plus accrued interest, all notes presented to it by or on behalf of any noteholder. It thereby became Roxy's guarantor on this note issue.

 In 1932 Roxy defaulted on the notes, which were then declared due and payable. At about the same time Roxy went into equity receivership in this court. A group of noteholders organized a noteholders' protective committee, and on behalf of those noteholders who deposited their notes with it made demand upon Fox Theatres to fulfil its agreement and to purchase the Roxy notes so deposited.

 By this time Fox Theatres also had gone into equity receivership in this court. Tender of the Roxy notes by the committee to Fox and its receivers for purchase was acknowledged and purchase was refused in August of 1932. As additional notes were deposited with the committee similar demands were made and refusals given. In 1937 the committee filed an amended proof of claim against Fox on behalf of noteholders which it represented in the total amount of $ 1,177,400, plus accrued uncompounded interest of some 32 1/2%.

 In the meantime Roxy had passed from equity receivership into a reorganization proceeding under then Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, and a plan of reorganization of Roxy had been formulated and appeared certain of approval in substance. It was then for the first time possible to estimate what the noteholders would receive in the Roxy reorganization on account of the obligation of the primary obligor Roxy. In settlement negotiations between the Fox receivers and the noteholders' committee an attempt was made to ascertain with some reasonable degree of certainty the value of what the noteholders might receive in the reorganization so as to determine what the obligation of the guarantor Fox might be. As a result the claim for $ 1,177,400, plus five years' accrued interest, was settled for $ 760,000 flat by written stipulation dated March 26, 1937.

 This settlement was submitted to a special master appointed to take proof and to report on the allowance of claim, who held a hearing on the settlement. It is quite plain from the minutes of the hearing that the basis of the settlement was the difference between the amount of the claim as filed and the value of what it was anticipated would be received by the noteholders in one form ...


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