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UNITED STATES TRUST CO. v. EXECUTIVE LIFE INS. CO.

November 20, 1984

UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, THE CHASE MANHATTAN BANK, N.A., as Trustee, SHARON STEEL CORPORATION, INC., UV INDUSTRIES, INC. LIQUIDATING TRUST, and DAVID FINKELSTEIN, ARTHUR R. GRALLA, PAUL KOLTON, THEODORE W. KHEEL, EDWIN JACOBSON and MARTIN HOROWITZ, as Trustees of the UV Industries, Inc. Liquidating Trust, Plaintiffs, against EXECUTIVE LIFE INSURANCE CO., OCCI & CO., STANIELS & CO., NEST & CO., AGWAY INSURANCE COMPANY and FIRST MISSOURI BANK & TRUST CO., on behalf of themselves and as representatives of a class of former Holders of 9-1/4% Senior Subordinated Notes Due April 15, 1987, MIMI SHAPIRO, MORTIMER A. SHAPIRO, PACIFIC & CO., CEDE & CO. and NORTH STAR OIL COMPANY, on behalf of themselves and as representatives of a class of Holders of 9-1/4% Senior Subordinated Notes Due April 15, 1987, BUTCHER & CO., WILLIAM W. HUMPHREY, Trustee, and LOUIS H. SPINER, Trustee, on behalf of themselves and as representatives of a class of former Holders of 5-3/8% Subordinated Debentures Due November 15, 1995, and BEAR STEARNS & CO., CEDE & CO., JULIAN S. GOLDBERG, MERICKA & CO., MUTUAL SHARES CORP. and MUTUAL QUALIFIED INCOME FUND, SAXON & CO., on behalf of themselves and as representatives of a class of Holders of 5-3/8% Subordinated Debentures Due November 15, 1995, Defendants.


The opinion of the court was delivered by: EDELSTEIN

OPINION AND ORDER

EDELSTEIN, District Judge:

 This is an interpleader class action, pursuant to 28 U.S.C. § 1335(a) and Fed. R. Civ. P. 23, brought, inter alia, by United States Trust Company of New York ("U.S. Trust") and the Chase Manhattan Bank, N.A., ("Chase") in their capacities as trustees for 9-1/4% Notes and 5-3/8% Debentures issued by the now defunct UV Industries, Inc.("UV"). *fn1" U.S. Trust and Chase are holders of interest installments, together with accumulated earnings thereon, paid to the banks by UV's successor corporation, Sharon Steel Corporation ("Sharon"). The named defendants are sued on behalf of themselves and as representatives of four classes of debtholders who have possible claims to the interest installment funds held by the stakeholders, U.S. Trust and Chase. *fn2" On March 9, 1984, the court certified the four classes. *fn3" At a pretrial conference in late May of 1984, all parties agreed that this case is appropriate for disposition on a motion for summary judgment because there are no material disputed issues of fact. The court then instructed the parties to submit cross motions for summary judgment.

 FACTUAL BACKGROUND

 The facts of this case have previously been set forth in two opinions by Judge Werker and the opinion of the United States Court of Appeals for the Second Circuit. See Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 521 F. Supp. 104 & 521 F. Supp. 118 (S.D.N.Y. 1981), aff'd in part, 691 F.2d 1039 (2d Cir. 1982), cert. denied, 460 U.S. 1012, 103 S. Ct. 1253, 75 L. Ed. 2d 482 (1983).

 Between 1965 and 1979, UV issued five sepaprate indentures, two of which are the subject of this motion. The U.S. Trust Indenture was issued on April 15, 1977, under which UV borrowed approximately $25 million by issuing 9-1/4% Senior Subordinated Notes due in 1987. The Chase Indenture was issued on September 1, 1965, under which UV borrowed approximately $23 million by issuing 5-3/8% Subordinated Debentures due 1979-1995. *fn4"

 In March 1979, the stockholders of UV approved a plan of complete liquidation involving the eventual sale of UV's assets and distribution of the proceeds to UV's stockholders. UV set aside a $155 million fund to provide for its long term debt obligation. On November 26, 1979, after UV had disposed of most of its assets, UV reached an agreement with plaintiff Sharon for the sale of UV's remaining properties in exchange for cash, Sharon debentures and an assumption by Sharon of all UV's outstanding liabilities, including the two indentures at issue here, and the Manufacturers Indenture, which was the senior indebtedness. *fn5"

 By letter dated December 24, 1979, the trustees issued notice of default to Sharon. The Manufacturers Indenture provides that a successor corporation can be substituted for UV as obligor only if the successor purchases all or substantially all of UV's assets. The trustees argued that because UV earlier had sold most of its assets, Sharon's purported assumption of the UV debenture obligations did not constitute a sale of "all or substantially all" of UV's property.

 Also on December 24, 1979, Sharon filed suit against the trustees seeking a declaration that the trustees' notice of default was improper and that Sharon was a valid assignee under the Manufacturers Indenture. *fn6"

 The Selling Classes.

 During the pendency of the litigation, Sharon declared semi-annual interest payments under both the U.S. Trust Indenture (the 9-1/4% Notes) and the Chase Indenture (the 5-3/8% Debentures). *fn7" Under Section 2.03 of the U.S Trust Indenture and Section 2.05 of the Chase Indenture, payment was to be made to the then owners of the bonds. Sharon then deposited with U.S. Trust and Chase the full amounts of the semi-annual interest installments. The two Selling Classes are those bondholders who were record owners of the bonds at the time Sharon declared semi-annual interest payments, and who subsequently transferred those bonds to a member of the respective Holding Class.

 Both U.S. Trust and Chase refused to distribute the interest payments deposited by Sharon to the Selling Class members because both indentures prohibited the payment of any monies on the subordinate indebtedness if there is a default on the senior indebtedness, the Manufacturers Indenture. *fn8" Because the Trustees had issued notices of default under the senior indebtedness and the issue of its default was before the United States District Court, U.S. Trust and Chase could not distribute the interest payments on the subordinate indebtedness. *fn9" On each regularly scheduled payment date, both banks sent notice to the bond holders that the interest installments received from Sharon would be held in separate accounts and invested in high-yielding money market instruments pending a determination of the persons entitled to the funds.

 On May 29, 1981, the district court held that Sharon's attempted assumption of UV's obligations was invalid and that UV was in default under the Chase Indenture and the Manufacturers Indenture, the senior indebtedness.This ruling was affirmed by the Court of Appeals for the Second Circuit on September 28, 1982 and Sharon's petition for writ of certiorari was denied on February 28, 1983. On June 8, 1983, the district court filed an Amended Judgment, which concluded the declaratory judgment action instituted by Sharon. See Exhibit E to Chase Affidavit.The Amended Judgment, however, did not make any provision for the disposition of the funds deposited by Sharon.

 The Holding Classes.

 On May 5, 1983, the Manufacturers Indenture, UV's senior indebtedness, was fully paid. Thus, because the default on the senior indebtedness was cured, under the terms of the indenture U.S. Trust was able to disburse the interest installments on the 9-1/4% Notes previously deposited by Sharon. Pursuant to the terms of the U.S. Trust Indenture, *fn10" U.S. Trust declared a special record date of June 30, 1983, for payment of the accrued interest. The 9-1/4% Holding Class consists of those persons or entities who, as of June 30, 1983, held of record 9-1/4% Notes transferred by a member of the 9-1/4% Selling Class.

 Similarly, payment on the Manufacturers Indenture freed Chase, under Article IV of the Chase Indenture, to distribute the interest installments on the 5-3/8% debentures. Pursuant to the terms of the Chase Indenture, *fn11" Chase declared June 9, 1983 as the special record date for payment of the accrued interest. The 5-3/8% Holding Class consists of those persons or entities who, as of June 9, 1983, held of record 5-3/8% debentures transferred by a member of the 5-3/8% Selling Class.

 To summarize, the Selling Classes in this case consist of those persons or entities who were holders of the bonds in 1980 when Sharon declared semi-annual interest payments on the bonds and deposited such interest with the trustees, and who sold the bonds prior to the special record date declared by the trustee for payment of the accrued interest.The Holding Classes consist of those persons or entities who ...


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