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U.S. Supreme Court

Comstock v. Group of Institutional Investors, 335 U.S. 211 (1948)

Comstock v. Group of Institutional Investors

No. 451

Argued March 9-10, 1948

Decided June 21, 1948*

335 U.S. 211


After certain railroads had been in reorganization under § 77 of the Bankruptcy Act for more than ten years and a second plan of reorganization had been approved by the Interstate Commerce Commission and was before a Federal District Court for approval, petitioner, who had recently bought securities of one of the subsidiary railroads at ten cents on the dollar, objected to allowance of a previously unchallenged large claim of the parent railroad against that subsidiary. He contended that the parent had dominated and controlled the subsidiary and had mismanaged its affairs to the detriment of the subsidiary and its other creditors, and that it would be inequitable to allow the claim. After full hearing, the District Court found that the parent had dominated and controlled the subsidiary, but that its administration of the subsidiary's affairs had been in good faith and to the advantage of the subsidiary and its other creditors, that the claim was valid and should be allowed, and that the reorganization plan was fair and equitable, and in accordance with law. It accordingly overruled petitioner's objections. The Circuit Court of Appeals concurred fully in the District Court's findings of fact, and affirmed its ruling.


1. In the absence of a very exceptional showing of error, the concurrent findings of fact of the two courts below are final in this Court. Pp. 335 U. S. 213-214.

2. In view of the amount and position of the claim involved and the fact that the subject matter of the objections was such that it went beyond petitioner's individual interests and affected the fairness and equity of the plan, the District Court did not err in adjudging the objections on their merits -- even though petitioner chanrobles.com-red

Page 335 U. S. 212

may have been barred by laches and other equitable considerations from asserting a cause of action in his own behalf. Pp. 335 U. S. 226-227.

3. In view of the functions cast upon the bankruptcy court in such cases, it may, in its discretion, consider objections on their merits, even though they have not been presented to the Commission. P. 335 U. S. 227.

4. The court should be diligent to protect itself and the public from approval of unfair plans, even by default, and may take for its own use evidence no party would have a right to force upon it. Pp. 335 U. S. 227-228.

5. Even though the parent had dominated and controlled the subsidiary, the District Court's allowance of the claim was not an error of law in view of its finding that the parent's administration of the subsidiary's affairs was in good faith and was beneficial and advantageous to the subsidiary and its other creditors. Taylor v. Standard Gas & Electric Co., 306 U. S. 307, distinguished. Pp. 335 U. S. 228-231.

6. The claim was not invalidated or barred by the fact that, under control of the parent, dividends were paid by the subsidiary at a time when it was borrowing money represented by the claim in view of the finding below that the dividends were paid out of current earnings or surplus, and not in bad faith or in violation of law or contract. Pp. 335 U. S. 229-230.

163 F.2d 350 affirmed; id., 358, certiorari dismissed.

In a railroad reorganization proceeding under § 77 of the Bankruptcy Act, the District Court overruled certain objections to a plan of reorganization. 64 F.Supp. 64. In No. 451, the Circuit Court of Appeals affirmed. 163 F.2d 350. In Nos. 452, 453, 454, the appeals were dismissed. 163 F.2d 358. This Court granted certiorari. 332 U.S. 850. No. 451 affirmed; Nos. 452, 453, 454, certiorari dismissed, p. 335 U. S. 231. chanrobles.com-red

Page 335 U. S. 213


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