Full opinion text
LINDLEY, District Judge. On January 10, 1984, this court announced that for reasons then stated a hearing should be had promptly to determine whether the appointment of receivers for Middle West Utilities Company, hereinafter termed Middle West, was the result of collusion and fraud upon the court. Middle West was one of the group of so-called Insull corporations which included among others two investment trusts, Insull Utility Investments, Inc., and Corporation Securities Company. On April 16, 1932, Calvin Fentress was appointed receiver for Insull Utility Investments, Inc., and, later, ancillary receiver in New York, and subsequently receiver in bankruptcy. Petition for compensation for services as receiver of Insull Utility Investments, Inc., by Calvin Fentress and petitions for compensation for legal services rendered to said receiver having been filed, the same were heard by the Hon. Evan A. Evans, one of the judges of the Circuit Court of Appeals of this circuit sitting in this court (6 F. Supp. 653). In the opinion filed in said proceedings Judge Evans said: “It is quite impossible to separate the application for the appointment of a receiver in the Insull Utility Investments, Inc., from like applications in Middle West and Corporation Securities Companies. Three companies were organized and promoted by the so-called Insull interests. They all revolved about the activities of one Samuel Insull, Sr. One company, the Middle West, was a holding company, and the other two are investment trusts.” After reviewing the evidence submitted before him, Judge Evans said, as to Insull Utilities Investment, Inc.: “Upon this showing, and bearing in mind that the suit was one for the appointment of a receiver, a finding that the suit was eollusively brought is unavoidable.” The value of Mr. Fentress’ services as receiver in the equity case and in the ancillary proceedings and as receiver in bankruptcy was fixed at $12,500, which sum he had already been paid. Further allowance of fees to him, therefore, was denied. Proper allowance of compensation to each of the two law firms representing said receiver was fixed at $12,500, which had already been paid to them. Allowance of further or additional fees as counsel for said receiver, therefore, was denied. It was because of the language of the pinion of Judge Evans in the case referred to that I deemed it incumbent upon this court to initiate and conduct this inquiry. Rightly or wrongly I regarded that opinion as containing an implication of fraud upon the court in procuring the appointment of receivers for Middle West, and announced that, independent of any action by any party litigant, it is always the duty of a court, the moment a substantial suggestion of fraud comes to it, upon its own motion, to institute an inquiry into all the facts; and that in the present case the court had formed the conviction that, whether or not any interested party should so request, it should, sitting in chancery, cause to bo initiated proceedings looking to a complete investigation and final adjudication of the question of whether this court has been the victim of a fraud perpetrated upon it. The receiver, Charles A. McCulloch, has also filed a petition setting forth in some detail the history of his appointment as receiver, subsequent developments and accomplished results of the receivership. Therein he said, “If there is a cloud on petitioner’s title as receiver he desires it removed,” and prayed that a rule be entered upon all interested parties to answer and set forth grounds of objection, if any, which they might have to his continuance as receiver, and that full investigation be made and his appointment confirmed. The court granted leave also to Sidney. B. Poliak to file an intervening petition, wherein it was alleged that he is the owner of 2,-200 shares of common stock of Middle West; that the receivership proceedings had been fraudulently instituted and were and are a fraud and imposition upon the court; that, prior to the time receivers were appointed, certain secret meetings had been held, attended by Samuel Insull, his personal counsel and executives of certain creditor banks, for the purpose of formulating a specific plan and procedure for placing Middle West and certain other so-called Insull Corporations in receivership; that at said meetings Samuel Insull, Edward 1ST. Hurley, and Charles A. McCulloch were eollusively selected to be suggested as receivers and the two law firms appointed as counsel for the receivers were likewise eollusively selected; that no debenture holders, unsecured creditors, or stockholders were represented; and that said meetings were held, and the selections of nominees made, solely in the interest of Samuel Insull and the secured bank creditors, who, it was alleged, were interested in protecting for themselves certain collateral placed by Insull with them to secure loans procured by him in his prior unlawful management of the corporation. This petition also charged that full and fair disclosure was not made to the court of the meetings or of what there occurred, as < o how or by whom the recommendations had been agreed upon; that about the same time a petition in bankruptcy was filed in this court against the company and is still pending; that the selection of receivers and solicitors was in violation of the practice approved by tbe Supreme Court; and that the receivers herein and their attorneys and solieitors are, as a result disqualified and their appointments illegal and void. The relief prayed in the petition is in the alternative: That the bill of complaint and all proceedings herein be forthwith dismissed; or that the orders appointing the receivers and their counsel be vacated, and that this court select and appoint a receiver and counsel therefor; that, upon such- dismissal, the receiver and his solicitors be required to return to the estate all moneys received by them on account of fees; that an order be entered -requiring the filing of a claim against the estate of Edward N. Hurley, now deeeaséd, for the amount by him received as fees as receiver; and that, if the estate has suffered any loss through the payment of unlawful expense on account of the receivership, the same be paid by counsel who were responsible for the imposition of the alleged fraud. A rule was entered upon all parties in interest to answer both the petition of the receiver and that of the intervening petitioner, and various answers of interested parties were filed. The court stated its determination to have developed every fact and circumstance tending to shed light upon the subject-matter of the inquiry, and appointed counsel entirely disinterested in the result of the inquiry, and wholly disassociated with any of the various interests involved, to appear, advise, and assist in the conduct of the hearing to the end that the court might be fully and completely advised upon all issues bearing upon the suggestion of fraud upon the court and upon the ultimate basic and most important question of what is for the best interests of the trust estate. Mr. Poliak filed his formal answer to the receiver’s petition, and appended thereto as an exhibit a copy of an intervening petition presented to,the court by him on June 7,1932, with a motion for leave to file the same. This motion was denied on or about August 12>, 1932. Since in the answers filed by other interested parties and at the hearing reference was made to this Poliak intervening petition previously presented, some consideration of the character thereof is appropriate. In this previous petition Sidney B. Poliak alleged that he was the owner of 2,800 shares of common stock of Middle West, and, upon information and belief, that there were outstanding 15,641,983 shares of said common stock. He recited the filing of the bill herein, the hearing had pursuant thereto, and the entry of the order appointing Samuel Insull, Edward N. Hurley, and Charles A. McCulloch receivers. He alleged that the law firms of Burry, Johnstone, Peters & Dixon and Schuyler, Dunbar & Weinfeld had been appointed and were acting as solicitors for the receivers; that the proceeding was a consent receivership procured by Middle West and engineered by Samuel Insull, and that the latter had exercised a dominating and controlling power in the company, and was continuing to dominate and control the policies and financial transactions of the company and affiliated corporations. This previous intervening petition also charged that Samuel Insull had been guilty of gross misconduct, prior to receivership, in the conduct of the business of said company, to the great financial injury of and loss to the stockholders, and to the wreck and ruin of the company. In this prior petition Sidney B. Poliak prayed that he be admitted as an intervener to protect his rights as the owner of common stock; that the order appointing receivers be modified by vacating the appointment of said Insull and appointing some disinterested and qualified person in his stead; and that the order appointing solicitors for the receivers be modified by vacating the appointment of Schuyler, Dunbar and Weinfeld and appointing some disinterested qualified law firm in their stead. There was no request for the removal of Edward N. Hurley or Charlés A. McCulloch as receivers or of the firm of Burry, Johnstone, Peters & Dixon as solicitors. It is urged in certain of the answers filed to the present Poliak petition that said petitioner is, by the presentation of his said former intervening petition, and by his failure then and therein to advise the court of any ground of objection to Messrs. Hurley and McCulloch or to Buriy, Johnstone, Peters and Dixon, and by tacitly acquiescing in their administration for a period of almost two years, now estopped to assert any charge of fraud or collusion against any party other than Samuel Insull or to claim that the banks were guilty of fraud in procuring the appointment of the other receivers, and that he cannot be now heard to assert charges of fraud which were not revealed in his previous petition. However, in view of the scope of the present inquiry initiated upon its own motion, the court makes no finding upon these questions of estoppel. The record shows that Samuel Insull within a few weeks after his appointment was compelled to and did tender his resignation as receiver, which was promptly accepted, that Edward N. Hurley is now deceased, and that Charles A. McCulloch is acting as sole receiver herein. This inquiry came on for hearing before the court on February 6, 1934, and was concluded sixteen days later. The transcript of the testimony in the record comprises nearly two thousand typewritten pages, in addition to exhibits identified and introduced in evidence. Full proof was made of the various acts and transactions leading up to the filing of the bill, the proceedings in court on the day of the appointment, and of the history and accomplishments of the receivership to the date the hearing herein was concluded. Those present and represented by counsel who have participated in this inquiry include: Counsel appointed by the court; the receiver, Charles A. McCulloch; the executor of the Estate of Edward N. Hurley, deceased; Sidney B. Poliak, a stockholder of Middle West; Lincoln Printing Company, plaintiff; the committee representing the holders of the $40,000,000 of unsecured notes of Middle West; the committee representing the preferred stockholders; the committee representing the common stockholders; the Continental Illinois National Bank & Trust Company of Chicago; the First National Bank & Trust Company of Chicago; and petitioners for involuntary adjudication in bankruptcy against Middle West. With the exception of counsel representing the petitioner Mr. Poliak and counsel appointed by the court, all of the solicitors have persistently urged throughout the inquiry that no fraud was committed upon the court. All have filed briefs and arguments supporting their position and insisting that, independent of that question, the conduct of the receivership has been constructive and advantageous to the property and to the beneficiaries of the trust, and that this, a court of equity, should decline to interfere with the administration by the surviving receiver, Charles A. McCulloch, but should approve the same and continue it as desirable for the best interests of all concerned. On the other hand, counsel for Mr. Poliak contended throughout the inquiry and by extensive' brief and argument that the receivership was conceived with a fraudulent purpose in the interest of Samuel Insull and the banks. All counsel have co-operated with counsel appointed by the court to develop of record in this hearing evidence of all facts bearing upon the subject-matter, of the inquiry. The record contains a full and complete recital not only of all known pertinent evidence, but also voluminous excerpts from the records and files of this receivership proceeding. The record discloses that during the month of December, 1931, there prevailed in business generally throughout the country, and especially in the banking business of the nation, a state of general economic unrest and uneasiness. The continually deepening financial depression had at that time brought about a condition in the affairs of Middle West which was then fast becoming a matter of grave concern to those having intimate knowledge of prevailing conditions. The company owed the First National Bank of Chicago something over $5,009,000, the Continental Illinois National Bank & Trust Com-pa.ny approximately a like amount, and the Central Republic Bank & Trust Company nearly $2,000,000. It owed various banks in New York City more than $10,000,000, and lesser amounts to other banks; its aggregate bank indebtedness being approximately $26,-000,000. The late Mr. Melvin A. Traylor, then, president of the First National of Chicago, in December directed Mr. Edward E. Brown, then an executive vice president of that bank, to take charge of all the bank’s loans to companies in which Samuel Insull was considered the dominant factor and to give special attention to the subject-matter of security for these loans. The affairs of Middle West were interwoven and interrelated with Corporation Securities Company and Insull Utility Investments, Inc., two investment trusts, controlled and dominated by Samuel Insull; and these trusts were also heavily indebted to the banks in New York and Chicago. About the 1st of January, 1932, frequent conferences were held by the representatives of the banks in Chicago and New York concerning the affairs of the corporations controlled by Samuel Insull. Request was made by the banks for the deposit by the debtor corporations of additional collateral to secure existing loans. There was much discussion with Samuel Insull concerning his ability to secure additional credit and avoid a collapse. Then pending in Congress was the Reconstruction Finance Corporation Act (15 USCA §§ 601-617), through the medium of which it was hoped corporations in need of additional credit could be financed and the banks relieved of some of their burden. However, .the aet, when finally adopted, was so framed that it was not believed it could extend credit directly to such corporations as those now under consideration. This information added to the concern and alarm of the investment interests of the country. Especially in New York and Chicago were they deeply concerned as to the possibility of such organizations weathering the storm. Conditions then, the witnesses before the court in this inquiry stated, were about as discouraging as they could be. At this juncture the creditor banks in Chicago agreed to enter into what they term a “standstill” agreement, by the terms of which they would refrain from foreclosing on their collateral and from pressing for payment on their loans, provided all creditor banks would agree and thus relieve the Insull companies from the pressure of reducing loans or furnishing additional collateral. . Although this “standstill” agreement was not actually signed by all of the creditor banks, the spirit of the agreement was respected by all and the companies were not thereafter subjected to demands for reduction of the loans or for additional collateral. Samuel Insull had for a long time been closely associated with Owen D. Young, chairman of the Board of the General Electric Company and deputy governor of the Federal Reserve Bank of New York, who was a man of recognized authority and standing in financial circles and national affairs. Mr. Young came to Chicago and discussed the situation with the officials of Middle West and with the Chicago bankers, and co-operated with them in a common attempt to avoid a collapse of the Insull financial situation and consequent injury, not only to its creditors and stockholders, but to the country as a whole. During the months of January and February, 1932, through the co-operation of the banks, the affairs of Middle West remained in status quo. But throughout that period there was great uneasiness because of the possible inability to carry on through the depression and avoid the disaster which would follow a financial wreck of what we may term the Middle West empire. This far-flung organization extended from New England to Texas and from the Dominion of Canada to the Gulf of Mexico, through the control and operation of hundreds of subsidiary companies, including not only public utilities but various industrial corporations. On the 29th of February, 1932, a plan was evolved by which Arthur Andersen & Co., a well-known auditing firm of Chicago, was employed to represent the interests of the New York banks in conjunction with the officials of the Chicago banks in connection with the affairs of the Middle West and other affiliated Insull corporations. Thereby it became this firm’s duty to prevent any diversion of funds or assets from any one of the Insull companies to another and to cooperate with Mr. Brown of the First National in Chicago and Mr. Stilwell of the Continental-Illinois in that city, the three of them- to form a committee to pass upon expenditures for any important purpose. Mr. Andersen proceeded to set up an organization and installed a plan of voucher control, by the terms of which, as to all major expenditures, all vouchers should be first approved by him or his representative before expenditures or payments were made. During the month of March, 1932, through the medium of this supervision by Andersen & Co., it developed that large cash expenditures would be required to meet the requirements of Middle West to keep it from default, and that such cash could be secured only by additional borrowings. Andersen’s conclusions to this effect were disputed by Samuel Insull, but the latter was finally forced to admit that approximately $3,000,000 cash would be required in addition to that which might be anticipated as receipts in the course of business, to meet obligations which would mature and have to be met by ihe 1st of June, 1932. In addition, the company was confronted with a $10,000,000 maturity on June 1, 1932, part of its outstanding $40,000,000 note issue. Strenuous effort was made by the banks to justify additional loans to meet the necessities of the company, and also in some manner to refund or extend the $10,000,000' in notes maturing June 1st. Andersen & Co. had also come to the conclusion, and finally secured acceptance of its figures, that at least $8,000,000, in addition to the $10,000,000 required to refund the maturing notes, would have to be provided during the year 1932 to enable Middle West to carry on its business. Because Samuel Insull was disputing the accuracy of Andersen’s calculations of cash necessities above cash receipts, a conference took place in New York City in the week of the 4th of April, 1932, in the office of Owen D. Young. It was attended by Samuel Insull, Sr., Samuel Insull, Jr., Harry G. Stuart, of the firm of Halsey, Stuart & Co., who had been large distributors of the $40,-000,000 of outstanding notes of Middle West Utilities Company, certain New York bankers, Edward E. Brown of the First National, A. J. Stilwell of the Continental Illinois of Chicago, W. C. Freeman and Carroll Gray of the Central Republic of Chicago, Arthur Andersen and Owen D. Young. Preliminary to this conference, Mr. Insull, who had preceded the other Chicago conferees to New York, had labored with Arthur Andersen to convince him of error in his conclusions as to the anticipated cash requirements of the company. Before Mr. Brown left for New York, the First National had by formal action of its executive committee authorized him, as its representative, to contribute as much as $150,000 toward an aggregate loan of $2,-500,000 or $3,000,000 to the Middle West Utilities Company, if it could be shown that a loan in that amount would be sufficient to meet its requirements and save the situation. Like authority had been given Mr. Stilwell by the Continental Illinois, if a pool could be formed which would furnish funds sufficient to meet the necessities. Neither the First National nor the Continental asked any security for any such advancement, but insisted that, if an aggregate fund were provided by the banks to loan to the Middle West Company, such loan should be made without requiring collateral. Indeed, the Continental had given Mr. Stilwell authority, if necessary, to make an outright contribution of the amount of its share of the aggregate total to be advanced in order to prevent a collapse of Middle West. This action upon the part of the banks was inspired, according to the testimony, by the belief that such an unsecured loan was warranted, if thereby the dire catastrophe of failure of the Insull holding companies and investment trusts could be averted and the consequent effect upon the nation as a whole avoided. At the meeting in New York Mr. Young presided. After some preliminary discussion, he retired to another room for conference with the bankers, in the absence of Samuel Insull. He returned to the general conference with the information that the New York banks were unwilling to make further advances without adequate security. Mr. Insull then inquired of Mr. Young “if this meant receivership,” and was told that “it probably did,” whereupon the evidence is, Samuel Insull accepted the inevitable and admitted that it was necessary, in order to conserve the property of the company, to have instituted suits asking for the appointment of receivers for the Middle West and the two investment trusts already mentioned. Thereupon the New York bankers suggested that the representatives of the Chicago banks return to Chicago, as the matter would have to be handled there. It was then generally understood by the parties participating that receivership was inevitable, but should be accomplished with as little shock to the financial system of the country as possible. It appears from the uneontradicted evidence, therefore, that up to that time the banks, especially those in Chicago, had endeavored to find a way and provide means to avoid financial disaster for the Insull companies; but that Mr. Andersen’s examination and calculations' showed that the catastrophe was inevitable, and that thereupon the interested parties became convinced of the absolute necessity of receivership. While in New York, Mr. Brown and Mr. Stilwell discussed with Mr. Young and others the names of men who might be available and desirable for selection as receivers in this unusually important situation. It was agreed that it was .essential to find men of outstanding reputation and well-known business standing and integrity, willing to be recommended. It was stated that it might be possible to persuade Ex-President Calvin Coolidge to accept appointment, and steps were taken to ascertain whether he would serve. Samuel Insull and his associates returned from New York, arriving in Chicago on Saturday, April 9th. Messrs. Brown and Stilwell arrived in Chicago on Sunday morning, April 10th, and learned that Samuel Insull had called a meeting- at the Chicago Club for Sunday afternoon. Some indignation was expressed by some of the bankers at Samuel Insull’s apparent presumption in himself calling this meeting. However, the parties invited attended the meeting. They included Samuel Insull, Samuel Insull, Jr., Waldo F. Tobey, of the law firm of Isham, Lincoln & Beale, who had long been personal attorneys for Samuel Insull and represented the Middle West and various other Insull controlled corporations, Daniel J. Schuyler, who had in some or many matters represented Samuel Insull, and whose law firm was counsel for Corporation Securities Company, Melvin A. Traylor, president, and Edward E. Brown, vice president, of the First National, James R. Leavell, president, and A. J. Stilwell and Herman Waldeek, vice presidents, of the Continental-lllinois; Joseph E. Otis, of the Central Republic; H. L. Stuart, of Halsey, Stuart & Co., through whom a large portion or all of $50,000,000 of Middle West Utilities Company notes had been sold, and who was also a heavy creditor, and Mr. Solomon Smith, of the Northern Trust Company of Chicago. Messrs. Traylor and Brown, on their way to the meeting, discussed the question of how best to avoid permitting Samuel Insull to occupy a dominating or controlling position in the impending receivership, and agreed that they would suggest to the other parties the wisdom of a plan by which the benefit of Insull’s knowledge and service could be had initially, but which at the same time would guarantee prevention of his domination of the management of the company after receivers should have been appointed. At the meeting, Mr. Traylor and Mr. Brown were instrumental in persuading the bankers there present from then coming to agreement as to who should be recommended to the court for receivers of Middle West, further than to suggest that there should be three, one of whom should, initially, be Samuel Insull. The record clearly shows that all parties attending the meeting at the Chicago Club understood that it was called for that place and at that time to avoid publicity. Apparently Samuel Insull presided and reported the result of the New York visit. He advised those present that it had been decided in New York that receivership for Middle West was inevitable, and that he preferred not to be one of the receivers, .but desired to be associated officially with the administration, preferably, it was intimated, as general manager. The majority of those present believed that, if he retained some such position of aiithority under the receivers, he would thereby escape direct responsibility to the court a.nd make it more easily possible for him to dominate than if he were one of three receivers associated with two forceful aggressive men acting as co-receivers. There was much discussion about who shonld be recommended for receivers The evidence is that it was stated that the most which could be done was to agree upon recommendations, as the appointment would be made by the court, and none of the parties could assume to dictate whom the court would appoint. Before leaving New York, arrangements had been made to have the New York bankers ascertain if Calvin Coolidge would accept the appointment, if he were named, and advice in that respect was not received until the following day, when information was telephoned from New York that Mr. Coolidge was not available. A number of names were suggested, and included in them were those of Edward N. Hurley, Charles A. McCulloch, John Hertz, Ex-Governor Frank O. Lowden, E. V. R. Thayer, R. B. Lamont, Garrard Winston, Rufus C. Dawes, Bruce Johnstone, and A. A. Sprague. It was then the consensus of opinion that the court should be asked to appoint three men, one of whom should be Samuel Insull. However, the parties present agreed that they would have further discussion, in the absence of Samuel Insull, in determining who should be recommended to the court as possessing the quality of independence that would prevent domination by Samuel Insull. On the following and succeeding days there were numerous conferences among the bankers, attempting to reach a decision as to whom they could by agreement recommend. Mr. Hurley was believed to possess peculiar qualifications for this position on account of his long and varied public career, having been chairman of the Federal Trade Commission, chairman of the United States Shipping Board during the war, executive of the Hurley Machine Company, and director of the Chicago Great Western Railroad Company, of the Central Republic Bank, of the Studebaker Corporation, the Illinois Power & Light Corporation, the Chicago City Railways, and numerous other eorpora^tions. He was familiar with the management and operation of utilities, and was believed to be a man who would immediately enlist public confidence. Charles A. McCulloch had been president of the Parmalee Transfer Company, an executive of the Yellow Cab • Company organizations, chairman of the Board of John R. Thompson Company, and a director of the First National Bank and other corporations, and was known and recognized as a self-made successful man of independent judgment and driving force. He was intimately acquainted with the business life of Chicago, and was believed to be a man of sterling integrity and unusual executive ability. There is no question from the record but that those who attended the meeting at the Chicaa-o Club on Sunday afternoon, April 9th, and further conferences during the days following, were responsible for the selection of the names later presented to the court. The participants included representatives of the leading banks of Chicago. Lawyers attending were interested, not only as counsel for certain of the so-called Insull companies, but were themselves owners of common stock of Middle West. Mr. Tobey was a member of the firm of Isham, Lincoln & Beale, who had for a long time represented Samuel Insull personally. They were counsel for the Commonwealth-Edison Company, the Public Service Company of Northern Illinois, Insull Utilities Investment, Inc., and at various times had represented Middle West. Mr. Tobey was the owner of common stock of Middle West and of securities in other Insull companies. Mr. Schuyler’s firm had done some personal work for Samuel Insull, and at that time he owned 30,000 shares ' of common stock of Middle West, for which he had paid about $300,000'. Evidence was introduced showing the extent at that time of the holdings of securities of the various Insull companies by the banks whose representatives participated in these conferences. In this connection, it is important to note that, throughout the hearing, frequent reference was made to certain of the Insull companies as the three large operating companies. By this characterization were meant Commonwealth-Edison Company, which is the company controlling and operating the eleetrie industry in the city of Chicago; People’s Gas, light & Coke Company, which controls and operates the gas utility in the city of Chicago; and Public Service Company of Northern Illinois, which is the corporation owning and operating electric, gas, and. other utilities in the territory adjacent to Chicago and generally throughout the northern part of Illinois. The banks were very heavily interested in the ownership of securities of these three operating companies and also in large amounts of the same which were held by the banks as collateral security on private and individual loans. These three operating companies formed the real foundation upon which the Insull utilities organization had been constructed. All three of them were solvent, paying dividends, and their capital stock was widely distributed and held by hundreds of thousands of individuals who regarded their securities as most valuable and substantial assets. There was deep concern on the part of the banks lest the collapse of the Middle West and its affiliated investment trusts might have such far-reaching results and consequences as so to shake public confidence in these three primary operating companies that the debacle would engulf them as well as Middle West and the investment trusts. There is no question but that representatives of the banks had a large and controlling voice in the determination of the selections that were later recommended to the court for appointment as receivers. If they were endeavoring to secure the appointment of receivers who would be friendly to their interests, to the prejudice of stockholders and other creditors, their activities and participation in these several conferences were highly objectionable and improper. On the other hand, if they were moved rather by a desire to secure the appointment of receivers who would be able and interested to conserve the assets of the company without partiality or discrimination, and to aid and assist in having recommended to the court receivers who would hold paramount the interests of the stockholders and general creditors, it cannot be said that in such case their participation in these preliminary conferences was collusive or unlawful in the sense of imposing upon the court or attempting so to do. It is therefore pertinent at the outset of a consideration of this question to consider the nature, character, and extent of the holdings by the banks of the various forms of capital securities and obligations of the Middle West and its affiliated investment trusts, as well as of the three operating companies above named, which were also controlled and dominated by Samuel Insull and -his organization. The evidence shows that the four Chicago banks represented at the conferences in question held as collateral to various loans more than 3,700,000 shares of common stock of Middle West, exclusive of other blocks of the common stock of the company which they held in various trust accounts. There were more than 1,200 borrowers who were pledgors of this stock at the Continental and First National banks. The First National, Continental, and Central Republic at that .time held as collateral over 50,000 shares of the preferred stock of Middle West, and either owned or held more than $1,350,000 in par value of its 6 per cent, gold notes. Halsey, Stuart & Co. had headed the syndicates which had sold the notes, and Avas itself a creditor in the amount of $2,500,000. These banks were heavily interested m the common stocks of the three Insull so-called operating companies. There was pledged with them more than 27 per cent, of the outstanding common stock of People’s Gas, Light & Coke Company, approximately 22 per cent, of the common stock of Commonwealth Edison Company, and approximately 16 per cent, of the common no-pax stock of Public Service Company of Northern Illinois. They held more than 23 per cent, of the common stock and more than 6 per cent, of the convertible preferred $100 par value 6 per cent, stock of Middle West; 8 per cent, of the $3 convertible preferred series A, and 5% per cent, of the common stock, of Midland United Company; substantial amounts of the preferred 7 per cent, prior lien, preferred 6 per cent, prior lien, and preferred 7 per cent, class A stock of Midland Utilities Company; more than 45 per cent, of the $3 optional preferred stock of Corporation Securities Company and 13 per cent, of its common stock and a substantial amount'of its 5 per cent, serial gold notes due in 1932 — 1935; more than 40 per cent, of the $5.50 prior preferred no-par cumulative stock of Insull Utility Investments, Inc., approximately 20 per cent, of its preferred second series no-par stock, more than 10 per cent, of its common stock, and some of its 6 per cent, series B 1940 gold debentures. The Continental and the First National had the larger holdings. The Continental individually held 87,147 shares, or 13.04 per cent., of the outstanding common stock of People’s Gas, Light & Coke Company, 149-692 shares, or 10% per cent., of the outstanding common stock of Commonwealth Edison Company, 43,924 shares, or 8.7 per cent., of the outstanding common stock of Public Service Company of Northern Illinois, 2,-664,121 shares, or 17 per. cent., of the common stock of Middle West, 39,477 shares of $6 convertible series A cumulative preferred stock of said company, and. owned outright $338,000 of its serial convertible gold notes. It held 327,851 shares of the common stock of Midland United Company and 29,645 shares, or approximately 1.8 per cent., of the outstanding convertible $3 preferred stock series A of said company. It had in its own investments $2,775,000 par amount of the 5 per cent, serial gold notes due 1932-1935 of Corporation Securities Company, more than 260,000 shares of the $3 optional preferred series 1929 stock of said company, and more than 1,350,000 shares of the common stock of said company; and substantial holdings o£ the securities of Insull Utility Investments, Inc. It must he conceded, therefore, that the interests-of the banks in the conduct of the proposed equity receivership extended beyond their collaterally secured commercial notes against Middle West. They were not only vitally interested in the preservation of values in the common stock of that company, hut were certainly interested because of and influenced by their very large holdings of the common stocks of the three solvent and sound operating companies. The decision that receivership was inevitable was reached several days before the bill was filed in this ease. For over three months the banks had been first concerned ' and later 'alarmed by the prospects of impending receivership. The meetings and conferences at which the proposed receivership was discussed were admittedly held in private, and the public generally was without information concerning them. The bill of complaint was filed late Thursday afternoon, April 14th, and presented to the court Friday morning, April 15th; at least as early as the Sunday previous to the filing of the bill Mr. Schuyler learned that it had been decided to ask for the appointment of receivers. Mr. Tobey likewise knew as early as (ho Sunday previous to the filing of the bill of the contemplated receivership. Both Mr. Schuyler and Mr. Tobey were invited to and attended the meeting at the Chicago Club on the Sunday referred to, four days before • the bill was filed. The banks knew that receivership was impending, and, on Friday of the week before the receivers were appointed, they beeame fully convinced that it was inevitable. Neither the individual stockholders nor the banks, represented by their officials, who participated in the preliminary conferences, sold any of their securities, although they must have known that the appointment of receivers would seriously depress, if not destroy, the market for their holdings. To me this is a very significant circumstance as shedding light upon the good faith or collusion of the parties participating in the meetings and conferences. The fact that none of these parties attempted to unload upon the publie his or their security holdings in Middle West and the investment trusts by sales on the stock exchange or otherwise merits commendation, and is evidence against the charge that these gentlemen were actuated by improper motives to damage or injure the common stockholders of the company. This observation applies as well to Halsey, Stuart & Co., who as investment hankers had sold large amounts of Insull company securities and themselves had very substantial investments therein. EL L. Stuart, representing this investment banking house, went with Samuel Insull to New York and participated in the conferences with Owen D. Y<}ung and the New York bankers the week previous to the filing of the bill; he returned with Insull to Chicago and attended the Sunday conference at the Chicago Club. From the evidence it appears that he was less willing than were the representatives of commercial banks to accept Arthur Andersen’s figures and conclusions, and apparently not until Samuel Insull himself admitted the certainty of receivership did Mr. Stuart cease to give aid, assistance, and encouragement in the hope of preventing the collapse of the Insull companies. With this proof of the unquestionable duty and desire of these banks to conserve the assets of Middle West, and thereby protect the values in its property and assets for the benefit of the holders of its common stock, the conclusion can hardly be drawn that their interest in protecting their secured loans waa the only motive or occasion for their very pronounced activities and participations in the conferences preliminary to the filing of the bill. The conditions through which we have passed since the year 1931 are probably such that a court of equity should take judicial notice thereof. However, the record made at the hearing in this inquiry contains clear and convincing evidence of the very unusual and trying situation confronting business generally and the hanks particularly during the last three or four years. The representatives of these banks were naturally fearful that the crash of this great union of affiliated corporate properties under the leadership of one holding company such as the Middle West would quite naturally have most far-reaching effects and consequences. The record shows that the hanking fraternity in. the great financial centers, and all those at all familiar or acquainted with the situation, were seriously alarmed and anxious as to the possible consequences of the financial collapse of the Middle West. The hanks had withstood many violent financial shocks prior, to that time. The heads of these institutions, better than any other business men, perhaps, could and did foresee the possible consequences of the Middle West organization crumbling into dismemberment or bankruptcy; they were in daily contact with the representatives of hundreds of thousands of individual investors whose fortunes had been staked on their faith in Samuel Insull and his financial policies and activities. Already there had been many serious bank and business failures. The financial strength of the nation, represented and typified in its banking structure, had already paid heavy toll to the consequences of the depression. It is contended by counsel for the banks in this proceeding that the executives of those institutions were naturally and properly interested for the common good, not only of the immediate stockholders and creditors of Middle West, but of the citizens of the country as a whole, in lightening so far as possible the shock which would inevitably follow the appointment of receivers for a company possessing such a vast aggregation of property and representing such investment as that of Middle West; and that, instead of subjecting these bankers to castigation and reproach, their conduct should bring commendation and praise. Whether their contention in this respect is to be admitted, it is not necessary for the chancellor now to determine or decide. But that they were not presumptuous in assuming some responsibility in aiding in the selection of the men who would be recommended to the court for appointment as receivers must certainly be acknowledged. From the record, the court is impressed with the conviction that they were not actuated by the selfish motive of protecting their own secured debts against the interests of common stockholders and other creditors and investors generally, and that their conduct in this respect does not therefore amount to collusion as that term is applied to the judicial attributes of a court of equity. Some discussion as to the proprieties of actions of creditors in the position of the bankers in such cases as this will appear later herein. However, it is claimed that, whether the bankers and lawyers who participated in these preliminary conferences were guilty of collusion by such participation or not, yet a fraud was committed upon the court by failing to advise the chancellor when the motion for appointment of receivers was made, of all the previous and preliminary conferences and meetings. This proposition raises an important legal question. The meetings had been without publicity, so far as the participants could control that element. The parties tried to arrange their conferences and conduct them without the public becoming advised of the seriousness of the gatherings and of the subject-matter discussed. Counsel boldly suggest to the court that in the very nature of things it was important that the public be not alarmed by publicity of the fact that preparations were under way to appoint receivers for these vast properties. On the other hand, counsel representing Mr. Poliak contend that the fact that such meetings and conferences were secret and private stamps them with bad faith and is evidence of collusion and fraud. Undoubtedly if these conferences were for a sinister or unlawful purpose or design, and the participants guilty of conspiracy against the interests of other creditors or stockholders, such conduct would well merit condemnation. On the contrary, if the meetings and conferences held and the secrecy observed were due to a desire to prevent public excitement and the institution of proceedings in foreign and different jurisdictions, and the commencement of attachment suits and other litigation, it should not be asserted that the meetings and the lack of publicity attending the same were improper or constitute evidence of unlawful collusion. We come, therefore, to the actual filing and presentation of the bill in this court for appointment of receivers, and to the conduct of counsel, the representations made, and the information disclosed to the chancellor, at that time. In this connection it is important to observe that among those who attended the preliminary conferences it was agreed that a bill should be filed and presented at the end of a calendar week when the security stock exchanges would be closed or closing for the week end. However, knowledge of the fact that the bankers were conferring about the Insull situation and that receivership was threatened became more or less a matter of public knowledge; and it was seriously feared that, if there were further delay in filing the petition, receivership proceedings would be instituted in some other jurisdiction. Other litigation was impending. It was believed that the proper jurisdiction for the administration of the equity receivership was Chicago, where Middle West had its principal office, and not in Delaware, where the company was organized, or in some jurisdiction remote from the executive offices of the company. The court is of opinion that all counsel appearing in this ease will agree to the wisdom of that conclusion. Accordingly, the firm of Isham, Lincoln & Beale, who were counsel for the Middle West Utilities Company, proceeded to prepare the initial bill of complaint, and participated in certain conferences at which. Lincoln Printing Company was selected as a friendly creditor to file the bill. The firm of Essington & McKibbin was selected as the lawyers to act as counsel for the complainant, and upon request accepted that employment. There has been no suggestion presented to the court that the law firm of Essington & McKibbin was not of such standing, reputation, and ability as to undertake a responsibility of this character. It is true that their selection to act in the capacity of attorneys for the plaintiff came from the counsel for the company, and that Samuel Insull himself asked Mr. Elexner, as president of the Lincoln Printing Company, to have his company appear as plaintiff in the case. If these suggestions and requests were not a part of a conspiracy either to commit a fraud upon the court or to injure or defraud other creditors or stockholders, they were not improper. Once the responsibility was accepted, discharge thereof rested entirely upon the integrity of the counsel chosen and upon the good faith of plaintiff. On the afternoon of April 14, 1932, the bill was filed by Mr. Essington, and on the following morning, April 15, 1932, he appeared in court and presented the same. I have refreshed 'my recollection of what then occurred by reading a transcript of the proceedings of that day. The answer of defendant admitting the allegations of the bill of complaint was filed and presented; therein defendant consented to the appointment of receivers as prayed. Thereupon the court inquired if there were others present who desired to be heard, and a Mr. Leopold appeared, saying that he represented a stockholder owning one hundred shares of the common stock of Middle West. He objected to the appointment of any receiver, for the reason, as he then stated, that the company was not insolvent. He referred to its financial condition, as shown by its annual statement dated December 31, 1931, which indicated that the company had a surplus of $6,000,000. It was the position of the objector, therefore, that no receivers should be appointed, but that the company should be allowed to proceed under the management of Samuel Insull, and that the best interests of the company required that there should be no interference with his management and domination. It was pointed out that there was danger of judgments by diligent creditors, institution of garnishment suits, levy of executions, and institution of conflicting litigation. It was determined by the court that the' bill filed by a bona fide creditor and confessed by the answer was sufficient to require the court to take jurisdiction and. appoint receivers. Thereupon counsel for plaintiff,, at the invitation of the court for suggestions,, in accord with previous practice, suggested the names of Samuel Insull, Edward N. Hurley, and Charles A. McCulloch, and explained that it was deemed desirable to ask that Samuel Insull be named as one of the receivers on account of his familiarity with the company and its affairs. It was further explained that neither Mr. Hurley nor Mr. Mc-Culloch were officers or creditors of the company, and a brief recital was made of facts with regard to them and their business connections. Thereupon the chancellor announced that receivers would be appointed, but that he desired to think of the personnel of the appointees and to consider what had been said, and requested that the gentlemen call upon him in chambers’ so that he might have an opportunity to meet and talk with them. A recess being taken, the judge retired from the bench, and the three gentlemen named were brought to his chambers and there interviewed by him at some length; Each of these gentlemen first came into the judge’s chambers alone. He explained to them the character of the trust for the administration of which they had been nominated. Then the three of them came in together, and there was further conversation concerning their proposed appointment. The judge stated to Samuel Insull that he was known as a man of dominating personality; that it had been suggested that there be three receivers, and that the court was of the opinion that the magnitude of the trust justified and required that, at least temporarily, three men should be appointed; that the court wished it distinctly understood that it was to be a three-man receivership and not a one-man receivership; that no one receiver should dominate it: that, if the court learned that the receivership was being dominated by Mr. Insull or by any one receiver, it would take immediate steps to correct that situation. To Mr. McCulloch the court remarked that he expected independent thought and responsibility by each receiver, and inquired if he were a “yes” man, to which Mr. Mc-Culloch replied that, if the court knew him as well as his friends did, he would not make such inquiry. He asserted that the court need have no misgivings in that respect. This was the first meeting between Mr. McCulloch, and the judge of the court, who, however, had met Mr. Hurley, and knew of the wide and favorable reputation he bore as a business man and the responsibilities he had met and carried with honor as a public official. The judge remarked that he knew of Samuel Insull, but had no real personal acquaintance with him, and impressed upon the three gentlemen that, if they should be named, the court would require equal responsibility from each of them and no domination by any one of them in the discharge of their duties. Mr. Bruce Johnstone, of the firm of Burry, Johnstone, Peters & Dixon, appeared and reported that he had been told request would be made for the appointment of his firm as one of the counsel for the receivers. He suggested to the court the imperative importance of as prompt and expeditious action in the premises as was reasonably consistent, to the end that ancillary receivership proceedings could be instituted in other jurisdictions to prevent conflicting appointments or the institution of other litigation, which might interfere with orderly administration of the trust by this court. After the interviews with Messrs. Insull, Hurley and McCulloch, the court returned to the bench and announced that he would accept the suggestions made by counsel for appointment, and entered the order. There was no statement made to the chancellor of the nature, character, number, and extent of the conferences or meetings out of which had come the names of the three men suggested to the court for appointment. It was stated that there had been discussion on that subject-matter by interested parties; and it was, of course, presumed that, some thought had been given to the matter previously. The counsel who presented the petition and made the nominations for receivers was a reputable member of the bar, of high standing in the profession, and known to the chancellor to be a lawyer of integrity and ability. The chancellor has a right to presume that nominations for receivers axe made advisedly upon due reflection and consideration of counsel and interested parties, and that counsel acting in that capacity in like manner have the requisite information concerning the men whose names are suggested for appointment as receivers in an equity proceeding, and that he will divulge to the court all such information. Mr. Essington was not, at the time he presented the bill of complaint, a stranger to the practice and conduct of equity receiverships. He had previous experience in such proceedings, and there is nothing in the record to indicate that the confidence reposed and indulged by the court toward Mr. Essington in the exercise and discharge of his professional responsibility was misplaced or misjudged. In other words, the court believes that he divulged to the court all information he had. Whether Mr. Essington should have been better informed raises another question discussed hereinafter. It is not inappropriate to remark here that, while radical differences of opinion have been manifested among counsel interested in this ease, at times evidenced and disclosed in bitterness of heated and acrimonious debate before the court, yet at this time I indulge no feeling that any counsel appearing for any interested party in this inquiry has been moved or actuated by any motive other than that of presenting his cause in the interest of his client as his conscience dictates, and with no sinister purpose for self-aggrandizement, or to cause injury to the trust here being administered. Some observations of the prevailing practice in so-called consent or friendly receiverships may serve to clarify somewhat the precise issues in this case. The bankruptcy court is open to a voluntary petition by a corporation, but such applicant, desiring to avoid forced liquidation, which is the ordinary result of bankruptcy, finds no similar adequate opportunity for relief by voluntary petition in a court of equity. If a company with frozen assets finds itself unable to meet maturities, but believes in good faith that it has property of such character that, if properly conserved and managed, it may eventually be disposed of with resulting advantage to creditors and stockholders, and therefore desires to avoid liquidation in bankruptcy, it usually finds itself, under our equity rules, unable to appeal directly to the court for relief. In some instances the corporation has deemed the facts to be such that'it could go into court as a plaintiff, making its lienholders defendants, and upon proper showing secure the appointment of a receiver. See Wabash, etc., R. R. Co. v. Central Tr. Co. (C. C.) 22 F. 138. Such proceeding has been criticized, however, and never directly approved by the Supreme Court, though the bill in the last ease mentioned was discussed incidently in Quincy, etc., Co. v. Humphreys, 145 U. S. 82, 12 S. Ct. 787, 791, 36 L. Ed. 632, where the court said: “The bill was obviously framed upon the theory that an insolvent railroad corporation has a standing in a court of equity to surrender its property to the custody of the court, to he preserved, and disposed of according to the rights of its various creditors, and, in the meantime, operated in the public interest.” Later the court cited the ease in such manner as to indicate that it regarded the theory with approval. Re Metropolitan Ry. Receivership, 208 U. S. 90, 28 S. Ct. 219, 52 L. Ed. 403. Suffice it to say, this method of procuring receivership for an involved corporation has not been widely followed. The bar quite generally has preferred to invoke the court’s jurisdiction of a cause of action by a bill filed by a creditor, making the involved corporation a party defendant. In accordance with well-known equity rules, such a hill could not succeed upon the application of an unsecured creditor. Rather it was necessary that the plaintiff show that he had procured judgment, had execution issued upon the same, and that the latter had been returned “no property found, subject to levy.” The resourcefulness of counsel soon led a step further, to the plan of arranging to have a friendly simple contract creditor file the suit and the defendant corporation enter its appearance, admitting the allegations of the bill and consenting to the relief prayed for, thereby waiving the right to object because a judgment had not been obtained. This practice received the approval of the Supreme Court in the ease of In re Metropolitan Receivership, supra, in which that court announced that, so long as the indebtedness of defendant to plaintiff was real and the diversity of the citizenship of the parties likewise real, there was a controversy of which the District Court had jurisdiction, and that the parties were not guilty of collusion because the defendant arranged with its creditor to have the suit brought and then admitted the averments and the allegations of the bill, including a consent to the appointment of receiver. Many cases have followed such practice, and it appears now to be well settled that a corporation finding itself in the condition mentioned may persuade one of its friendly creditors to file suit against it, praying for the appointment of receiver; that it may prepare the bill for the plaintiff’s solicitors; that it may legitimately cause the institution of the suit, go into court, admit the allegations of the hill, and consent that the relief prayed for be granted. The case will not be regarded as collusive merely because the parties to the suit acted in accord and arranged together that the suit should be brought in a given court and that the averments of the bill should be admitted. U. S. v. Butterworth, 269 U. S. 504, 46 S. Ct. 179, 70 L. Ed. 380; Black & White Taxicab, etc., Co. v. Brown, etc., Co., 276 U. S. 518, 48 S. Ct. 404, 72 L. Ed. 681, 57 A. L. R. 426; May Hosiery Mills v. U. S. District Court (C. C. A.) 64 F.(2d) 450; America