(269 F.)

has he to this time asked that it be allowed or paid. In the offensive sense, naturally conveyed and evidently intended, the allegation is

untrue.

Again it is alleged that Mr. New is a member of a certain law firm in Kansas City which, as attorneys for William Kenefick and the William Kenefick Construction Company, are "asserting claims to a large amount against the receiver, or the new company," and seeking to have them declared preferential to the old first mortgage bonds. This charge, read with others, means that Mr. New, while a receiver and also a trustee for future stockholders of the new company, to whom he owed the highest duty of fidelity and good faith, was at the same time prosecuting a claim that would lessen the value of their interests. Both phases of this charge are untrue. Mr. New has not been a member of the law firm for several years, and for several years has had no financial or other interest in its business. This could have been learned by casual inquiry of those with whom the petitioners were in daily contact. In the next place, neither Mr. New nor the law firm in question were asserting for Mr. Kenefick or the construction company any claim against the receiver or the new company. Alexander New is regarded by all who know him as one who both entertains and practices in business affairs and in private life the highest code of ethics. The attack upon him in the petition has not the excuse of a personal quarrel, and is explicable only by some ulterior purpose.

The same unfair course has been employed against Mr. Ferris, the operating receiver until January 1, 1919, then general superintendent under the Railroad Administration until the end of government control March 1, 1920, and thereafter, until recently, an official of the new company in charge of operations. The records of his management prior to January 1, 1918, and the reports to the Interstate Commerce Commission, definitely show a steady progress in the restoration of the property and the growth of its business. Mr. Ferris became a receiver March, 1915. For the year 1915 there was an operating revenue deficit of $191,216. For 1916 there was a surplus of $195,678, and in 1917 a surplus of $316,864, an increase over 1915 of more than $500,000. In 1917 there was a net income of $62,739. During 1918 the operating officials of the Railroad Administration took the position that the Missouri, Oklahoma & Gulf was not under government control, and as a result much of its natural traffic for that year was diverted to the large government-controlled railroad systems surrounding it. At the same time it was compelled to meet the increased wage schedules ordered by the government, the awards of back pay, and the rising cost of materials. It was not even allowed to route its office supplies, destined to its offices at Muskogee, Okl., over its own lines. As compared with the preceding year, 1917, a loss in net operating revenues of $547,776 was inflicted, and the net income of $62,739 was changed to a deficit. of $447,838. So grievous were these conditions and so manifest the injustice to the property that an exposition of them at Washington in December, 1918, greatly influenced a change of policy by the Railroad Administration, and the agreement of December 21, 1918, was soon made. The agreement provides affirmatively for government control

269 F.-4

as of January 1, 1919. No reasonable-minded person would hold Mr. Ferris responsible for the showing in 1918.

While Mr. Ferris was receiver, his acts were being subjected to close and unfriendly scrutiny by persons in his service, afterwards discharged. Their criticisms were detailed on the witness stand. For the most part they were so petty and meticulous that they need not be further mentioned. Two things were emphasized. Both occurred during government control, and the responsibility, if any, was to the Railroad Administration, not to the receivership or the new company. One related to the keeping of the accounts of the repair of an implement owned by him and of its use on the railroad property. The accounting method was irregular, but not dishonest. No secret was made of it. The other related to the purchase of railroad materials considerably in excess of normal. This was characterized as wasteful and improvident. It appeared that during its control the Railroad Administration had allotted $690,000 for materials and labor upon the railroad, without creating a debt of the receivership or the new company, and that Mr. Ferris was endeavoring to give the property the benefit of it while government control lasted. That course was generally pursued by the railroads of the country under government control, and if the right and opportunity was abused it would seem that complaint should originate with the government instead of with parties claiming an interest in the welfare of the property.

Two other matters in the petition and evidence at the hearing may be noticed. It is claimed by petitioners that at a general conference of parties in interest in May, 1918, assurances were given by the judge, or a statement made by him, that the Fidelity Trust Company would be appointed as one of the three stock trustees. The date is material. The weight of the evidence shows, and the judge knows, that no such assurances were given and no such statement was made, and that nothing was said, directly or indirectly, from which such a conclusion could be reasonably inferred. The object of petitioners in this particular is obscure. It is explainable only on the theory that they claim such appointment as an element of a contract with them. What was said on that subject occurred several months later, was said to its counsel, and was not of a character from which a contract obligation could be inferred, or even a moral obligation, regardless of the conduct or attitude of that company towards the reorganization.

The other matter is this: On December 1, 1919, the judge at his chambers in Leavenworth, Kan., signed several orders relating to the reorganization and delivered them to Mr. Arthur Miller, counsel for the new company, to be filed with the clerk at Muskogee. One order was the appointment of the three stock trustees under the plan of adjustment, one of them being the Fidelity National Bank & Trust Company. Another order directed the receiver to transfer certain stock in the new company to the three trustees. The three trustees were named in this order and their trust capacity specified. The other orders related to other matters. All orders were dated December 1, 1919. Mr. Miller sent all the orders to the clerk at Muskogee, where they were filed December 11, except the first mentioned, which he mis

(269 F.)

placed in his office and did not discover until early in March, 1920, when he sent it to be filed. It was filed March 6, 1920.

Referring to the order appointing the three trustees, which was misplaced, the petition charges that it was concealed and suppressed by Mr. Hagerman for improper purposes, and was not discovered until counsel examined the records at Muskogee March 21, 1920. Of course, the charge is untrue. One of the individual petitioners testified that he was informed by letter as early as July 25, 1919, that the Fidelity National Bank & Trust Company would be appointed as one of the trustees, and that he immediately showed the letter to one of the other individual petitioners, both officers of the Fidelity National Bank & Trust Company; also that on November 12, 1919, he was informed who all three trustees would be. A witness for petitioners testified that in December, 1919 (after the order of appointment was signed), he told one of the individual petitioners that his institution was a trustee. The evidence at the hearing in its entirety shows that petitioners knew their institution would be appointed, and in December, shortly after the order was made, had actual knowledge of the appointment. Notwithstanding this, and Mr. Miller's statement that the oversight was his alone and was unintentional, the petitioners continued at the hearing to bring up the failure to file the order until March 6.

Counsel who examined the records at Muskogee March 21, and saw the other order, also dated December 1, and filed December 11, which recited the names of the trustees and their trust capacity, did not inform his clients of it. By itself the order which he saw was filed December 11 was legally equivalent to an appointment. Apart from the charge of misconduct in the petition, this matter may appear trivial; but its reiteration at the hearing led to an inquiry of one of the individual petitioners on the witness stand as to what prejudice could have been caused by the failure promptly to file the order. The shameful answer was made that the judge knew whether he signed the order on December 1 or not, but he immediately suspected that it had been prepared in March, and dated back of a controversy which occurred. early in March with Mr. Hagerman. No more need be said of this, except that the position was so discreditable to the witness that he afterwards sought to escape from it.

Enough has been said to show that the petition was intended to be scandalous and to create a sensation in the neighborhood. It does not appear that the other interests petitioners represent joined with them in this proceeding, or approve of the methods employed. The reasonable inference is they do not. It is certain that very large interests on an equality with theirs and the representatives of the old bondholders, who will own the railroad, affirmatively disapprove. The petition is replete with false statements and statements of half truths, with misleading innuendoes and inferences. In its violence it is like what in physical activities against the government or established institutions. is called "direct action." Occasionally such methods have been employed elsewhere, but fortunately the cases are not common. The redress of real grievances does not require them. Courts and judges, who have come to notice the new and exceptional practice, while

awarding justice at all times and under all circumstances, will grant nothing to violence and scandal. Real grievances lose nothing by their assertion in an orderly way.

The conduct of certain holders of receivers' certificates justifies the belief that they deliberately set about to capture this railroad from the bondholders, while the World War was on and the bondholders were powerless to protect themselves. It is admitted that, while those conditions existed, they discussed among themselves a sale and buying in of the road under their receivers' certificates. They objected to proposed plans of reorganization, unless they were put in control of the property. The crisis precipitated by the government control of railroads January 1, 1918, and the threatened exclusion therefrom of the Missouri, Oklahoma & Gulf, operated to coerce them to accept the plan of adjustment put out by the judge. This they admit, and they still say they do not like the plan. They are not in sympathy with it. Government control had hardly ceased March 1, 1920, when this proceeding was begun, and the honesty and integrity of almost every one who had prominently helped to bring the plan about, or to aid in its consummation, was attacked. They did not wish the Commerce Trust Company, of Kansas City, Mo., selected as trustee in the lien instrument securing the United States for its advances under the plan of adjustment and the agreement of December 21, 1918, a position which did not directly concern them or their legal interests. They objected to the selection of the St. Louis Union Trust Company as the trustee in the mortgage securing the bonds of the new company. The trust company had been trustee in the mortgages of the Missouri, Oklahoma & Gulf, and, so far as it could, had aided the plan of adjustment. They objected to the connection of certain men with the receivership and the new company because of lack of railroad experience, while at the same time insisting upon selections from some of their own number equally inexperienced. Again, the judge has been recently advised that some of them were considering a contest of the application of the new company to the Interstate Commerce Commission for a certificate of authority to issue the stocks and bonds of that company specifically required by the plan of adjustment. The granting of such authority was vital to the carrying out of the plan. So much of this has occurred in the history of this matter that it cannot reasonably be attributed to anything else than a spirit of opposition to the consummation of the plan of adjustment, which conditions forced them to accept.

[2] The petition is dismissed at the cost of the petitioners. The depositary under the plan of adjustment reports that there have been deposited with him and his subdepositaries, including the branch of the Equitable Trust Company of New York in Paris, France, first mortgage bonds of the old railroad companies aggregating $5,848,600 out of the total outstanding of $12,241,100 as specified in the plan. Counsel for committees of bondholders and of individuals holding bonds has presented a petition stating substantially the same facts; also that he is informed and verily believes that a large number of undeposited bonds have been lost or destroyed in the European war, and that the

(269 F.)

amount deposited will prove to be a majority. He asks that the depositing bondholders may be authorized to select the voting trustees according to the provisions of the plan of adjustment. The petition. and the report will be filed at Muskogee. The two individual trustees, Mr. New and Mr. B. H. Hagerman, have also advised the judge of the above figures, and that in their view the delivery of the property to representatives of the old bondholders, to whom nearly all of the stock will be issued, should be expedited by allowing them to select such officers. The plan provides that this may be done within any time fixed by the judge when a majority in amount of the holders of the old first mortgage bonds have accepted it; also that the judge might make minor changes in the plan, not affecting its substantial structure or the substantial rights of those who may have accepted it.

The judge is of the opinion that in advance of the acceptance by an actual majority of the amount of bonds specified in the plan and a verification of their holdings in some authoritative way a change in the plan such as is desired would not be a minor one within his power to make. He will, however, in view of the above representations, do what will work to the same practical end; that is to say, appoint as his appointees two trustees whose names are presented by counsel for the depositing bondholders, namely, Edmund F. Harding, Esq., and Cyril F. Dos Passos, Esq., both of New York. It is apparent that the remaining trusteeship should not be held by the, corporate petitioner. At the same time it is necessary to observe the plan, which provides that one of the three trustees appointed by the judge "shall be selected from the holders of or the officers of one of the financial institutions which hold receivers' certificates." Suggestions will be received as to who should be appointed to that place. Orders carrying the above into effect will be made and filed at Muskogee.

When the railroad was turned over to the new company, it occupied a dual position. First, it was the owner and the operator of the property while not under government control. With those aspects neither the court nor the judge is interested, save in the general desire entertained by all that the operation be prosperous. But, second, the new company became a necessary agency or instrumentality of the judge in carrying out the plan of adjustment, for which he had obligated himself to the government and to every person and corporation who had accepted it. For the execution of every note, bond, lien instrument, mortgage, and certificate of stock, every essential corporate step in the plan and in the disbursement of a large sum of money advanced by the government, and not for use on the physical property, he is compelled to rely upon the new company, and therefore upon its officers, through whom alone it can corporately act. It was for this reason and to insure the carrying out of the plan that the power to appoint and displace the stock trustees was vested in him.