Full opinion text
ANDERSON, Circuit Judge. This opinion supplements and, to be understood, must be read with, the opinion of October 3, 1925, 8 F.(2d) 392. Pursuant to that opinion, an. amended interlocutory decree was entered on December 14, 1925, which (summarized) adjudicated : (1) That the reorganization of the receivership estate effected by the committee was invalid. (2) That the decree of February, 17,1923, approving a plan of reorganization, was obtained by fraud, and should be vacated or modified if and in so far as such deeree might affect the rights of Wiltsee and/or of any other creditors seeking and held entitled to join in these proceedings. (3) That creditors are entitled to elect to rescind the settlements of their debt claims made by them with the committee, and to be reinstated in rights as unpaid creditors against the receivership estate and/or such committee. (4) That the receiver send each creditor a copy of the opinion, with a notice that such right to rescind should be exercised on or before January 8, 1926, by depositing the creditor’s stock with the receiver, to be held subject to the future order of the court. (5) That the receiver file an intervening petition for creditors so authorizing and instructing him, whose stocks shall have been received by him. (6) That any party in interest might, on or before January 18, 1926, file objections to the right of any creditor thus seeking to rescind. (7) That the ease stand for a hearing on January 25,1926, on all petitions to intervene and objections thereto, and on any other appropriate pleadings, as well as on the general issue of the extent of the committee’s liability. Pursuant to this notice, about 335 creditors, whose claims, without interest, aggregate about $2,300,000, have filed intervening petitions (most of them accompanied by a deposit of stocks with the receiver), 260 claims, about $800,000 in amount, by the receiver, and the balance by counsel; the committee have appeared by new counsel, and have filed a large variety of motions and pleadings. Some of their pleadings seek to raise issues going to the foundation of their liability; others raise minor questions as to the status of intervening creditors. The committee’s main contentions have been argued at great length by two counsel for the committee and by four or more counsel for the creditors. While many new aspects of the bulky record, and particularly of some of the exhibits, have by both sides been now urged upon the court, no substantial error in the findings set forth in the former opinion has been found. Certain findings are hereafter amplified, and to that extent modified. All other findings have stood the test of reargument and are affirmed — except that the interest rate on the loan of $1,300,000 was 8 per cent., not 7 per cent., as stated (8 F. [2d] 404), and the alleged revised cost of the tankers was $8,451,000 and not $8,541,000. Every conceivable technical objection has been urged in the committee’s favor — both against the use of the present record as a basis for any adjudication of rights, and also that, on this record, no liability of the committee accrues. But counsel for the committee, though in effect invited to do so, have expressly declined to file a petition for rehearing in order to supply any of the argued inadequacies of the existing record. The main contention of counsel for the committee is that, assuming maladministration by the committee, no liability to creditors can, in these proceedings, be enforced; that such liability can only, be enforced in new proceedings, instituted by the receiver, and not by Wiltsee or by any other creditor or class of creditors. They urge that a trial which lasted nearly 40 days, with a resultant record of about 3,500 pages, besides about 175 exhibits, was nothing but “an investigation,” from which no rights can be worked out either for Wiltsee or for any other creditors. This contention makes it necessary to state in some detail the history of the proceedings. On May 8, 1924, Wiltsee, after this court had held Ms claim valid for $176,000, filed a petition asking for information concerning the reorganization effected by this committee under the decree of February 17, 1923. This petition resulted in the opinion of July 18, 1924 (4 F.[2d] 392,), and a decree that the committee woro fiduciaries having the general rights and powers and being subject to the general obligations and limitations of trustees, and that they should make a report covering the reorganization. Counsel for the committee accepted this ruling as correct; such report was filed on Augúst 27,1924. On March 13, 1925, Wiltsee filed another petition, alleging that this report was inadequate, and asking that the committee be ordered to file another and complete report; and on April 4,1925, he filed a long amendment, setting out that the committee did not act in the interest of the creditors or stockholders of the New England Oil Corporation (of whose assets the receiver was appointed), hut had directed the “reorgamzation to the purpose of acquiring control of tho New England Oil Refining Company for the Petroleum Heat & Power Company or of the Mexican Petroleum Company, ote. The prayer was for an investigation of tho entire proceedings of the committee and of others who had participated with the committee in the reorganization, in order that it might be determined whether the court’s approval of the plan should not be revoked, or some other appropriate remedy given the petitioner and other creditors and stockholders of the New England Oil Refining Company. He sought an examination of witnesses in open court. In the light of the present contention that the subsequent proceedings involved no attack by Wiltsee upon the validity of the reorganization or assertion of liability by the committee, it is important to note that before any evidence whatever, (except the committee’s first report) had been offered, Wiltsce’s petition had expressly suggested that the decree approving the plan should he revoked. While probably not of importance, it may as well here be noted that the order vacating or modifying the decree of February 17,1923, if and in so far as such doeree may affect the rights of Wiltsee or of any other intervening creditors, was not by this court “initiated of its own motion,” as tho Court of Appeals in the mandamus ease was in some fashion erroneously led to assume. 9 F.(2d) 347. Wilt-see’s petition of May 8, 1924, expressly suggested such rescission or modification; and the same view was urged upon the court at the very end of the brief received by the court from Wiltsee’s counsel on August 27, 1925. The court initiated nothing, except the notice to uninformed creditors; it dealt with the contentions of litigants. This court, of course, accepts the view of the Court of Appeals — that if the committee “have been guilty of fraud that has damaged the receivership estate, they are responsible thereto for all,the damage they have occasioned it, without regard to whether the decree of February 17 is or is not vacated.” 9 F.(2d) 347. At any rate, not only was the decree obtained by fraud, but the reorganization effected by the committee was ultra vires the decree they obtained, A decree grounded in fraud and also disregarded by fiduciaries is no defense to proceedings for breach of trust. On April 8, 1925, Wiltsee filed, pursuant to order of tho court, elaborate specifications of the matters concerning which he desired to offer evidence, covering some .15 described details, besides alleging in general terms that the reorganization had not been successful either iu giving value to the stock of the reorganized eoneern or in preserving the assets of the receivership estate. The actual trial began on April 8,1925, at 2 o’clock. Wiltsee’s counsel then called the plaintiff Parker and the lawyer who had drafted the, hill, both of whom testified briefly. The hearing was then adjonrnod to April 10, 1925. At the very opening of this second day’s hearing, counsel for the committee complained that the proceedings in their publicity and otherwise were unjust to the committee and to Palmer, their counsel; he referred to the court’s opinion of July 18,1924, saying: “Under the opinion filed by your honor in the inquiry before you, where the reorganizers, that is the noteholders’ committee, ‘bring a faithful purpose, to administer the estate for the beneficial owners and in no part for their own benefit, or for any outside concern in which they have presently or prospectively any interest, their discretion is not, ordinarily, subject to review or criticism by the court. In a word, if they have reorganized the receivership estate for the benefit of its owners, and not for the benefit of themselves, directly or indirectly, their honest use of their wide discretionary powers is not to be revised by the court.’ “Therefore that is the issue before us, whether the reorganization was for the benefit of the owners of this property or whether somebody there was actuated by considerations of his own interest, outside of and beyond and adverse to the interests of the receivership estate.” After lengthy discussion and against objection by Wiltsee’s counsel, the court granted the motion of the committee that they be permitted to go forward and show affirmatively legal and faithful performance of their fiduciary duties, assuming (as their counsel elected to assume) “the general burden which rests upon parties plaintiff.” Under this ruling, the trial proceeded until counsel for the committee rested their ease on July 31,1925, on the theory that they had then offered all the evidence that they desired to offer both as to the value of the estate they took and their administration of it. Wilt-see’s counsel called no witnesses; he argued liability to his client on the evidence adduced by the committee themselves, supplemented and corrected, of course, by cross-examination. But meantime, as the ease developed, the court had become disturbed at the indications that the decree of February 17, 1923, even if valid, had not been complied with; and on April 15, 1925, read into the record a memorandum opinion covering nine points (Ree. pp. 452-456), leading to the conclusion that the committee should file an additional and full and complete report of their doings. This opinion pointed out that the documents annexed to the petition of the committee were inconsistent with the printed plan approved by the court, and suggested that it was inconceivable that if these inconsistent documents had been brought to Judge Morton’s attention he would not have promptly and emphatically disapproved of them and perhaps of the whole reorganization plan. Pursuant to this opinion, a decree was entered on April 27, 1925, providing for an additional report by the committee; such report was filed on May 19, 1925. It is an important part of the evidence. It goes far toward establishing the committee’s liability. During these hearings, consuming between April 8 and July 31, 1925) over 30 days, at no time did the committee suggest that they had either the right or the desire to require any additional pleadings from Wiltsee; or that on their part they desired to -file any pleadings additional to the two reports that they had already filed. There were objections by the committee to evidence on cross-examination tending to show illegal combination to control the oil market. On June 26, 1925, the court adopted, in effect, the contentions of counsel for the committee; and in a memorandum opinion ruled that the “anti-trust ease,” should not be tried as a part of these proceedings. In this opinion, the court said, “Counsel for Wiltsee was able to give the court no satisfactory answer to the question as to what decree should be entered, if all his contentions in that regard were sustained,” and pointed out the grave questions which had arisen under'the disclosures already made, and the duty resting upon the committee of making a full showing of legal and faithful performance of their fiduciary obligation, as the proceedings were “for the obvious purpose of ascertaining and protecting rights entitled to protection in this court,” and concluded as follows: “Early in the hearing on motion of counsel for the noteholders’ committee, the court ruled that the noteholders’ committee were entitled to go forward, showing affirmatively legal and faithful performance of their fiduciary duties. They have not yet completed their case. The case must stand * * * for full hearing of all evidence thought by the reorganizers to justify their proceedings and of course for any evidence offered by Wiltsee or any other party in interest leading to the contrary conclusion not inconsistent with this memorandum.” This ruling (sought and obtained by the committee), went flatly on the ground that the court would try no issue in theáe proceedings which would not ground an effective decree “protecting rights entitled to protection in this court,” and was accepted by Wiltsee’s counsel as a proper guide in the rest of the trial. After thus eliminating the “anti-trust issue,” the trial proceeded on the theory that Wiltsee was seeking to recover from, the committee for maladministration (not including illegal control of the oil market) the amount of his claim. It must have been clear to all parties that the court so understood the situation. If the committee did not so understand it, and did not intend the court so to understand it, it was their plain duty then to call the matter to the court’s attention. This they did not do; but they proceeded with the trial of the ease on pleadings which, as they knew, the court regarded as sufficient to support the issues being tried. They now contend that the pleadings were insufficient for that purpose. Either the committee then understood the matter as the court and Wiltsee’s counsel did, and went ahead on the understanding that the issue of their liability was being tried; or they did not so understand it, and kept silent. In either aspect, they cannot now be heard to say that during the subsequent 18 days of hearing the court was presiding over an empty and fruitless eeremony called “an investigation.” “An investigation” is a proceeding unknown to a court of justice, either in law or in equity. .Courts sit and hear evidence in order to adjudicate the rights of parties actually or potentially before them. They do not preside over mere investigations, grounded either on curiosity or as merely preliminary to a (possible) future suit. Not even a bill of discovery could be regarded as an investigation, as the committee would now have the term applied to the proceedings in this cause. There was also during the hearings repeated discussion as to the court’s owing an affirmative duty to other creditors (then uninformed of the true situation) who, if Wilt-see’s contention of maladministration should be sustained, had analogous rights. In June, 1925, a suggestion was made that the ease might be disposed of by a settlement of Wilt-see’s claim; and the negotiations therefor were disclosed to the court because of the court’s indicated views as to the rights of other creditors. The court was then in such doubt as to the nature and extent of its affirmative duty to other creditors, that Judge Morton was asked to sit, and did sit, with the writer in order to participate in determining whether the court could then properly permit the proceedings to be ended by a settlement of Wiltsee’s claim, when, as it then seemed, the receivership estate had not been disposed of in accordance with the court’s decree or with proper regard to the rights of the chief beneficial owners. The statements in the former opinion (8 F.[2d] 401), relative to what occurred in February, 1923, before Judge Morton, and the nature and extent of his knowledge of the situation, are based upon Judge Morton’s statements made at this hearing in the presence of counsel, and thus made a part of the record in this case. It is therefore unnecessary to consider to what extent one judge sitting as District Court may properly ground findings upon statements, dehors the record, made by another judge, as to the latter’s knowledge or lack of knowledge of important facts when participating in the conduct of the same case. This proposed settlement fell through. But there was no chance of misunderstanding by counsel for the committee that the case then being tried was tho liability of the committee to Wiltsee and to other creditors who might after due notice subsequently acquire a like legal status. On July 28,1925, as the trial drew toward its end, Wiltsee filed a lengthy petition, sketching in ten paragraphs the history of tho receivership and the reorganization, and charging that the committee had maladministered and lost a large part thereof, and should therefore be required to pay either to the corporation for his benefit or, to avoid circuity, directly to him the amount of his claim for $176,000, together with the expenses of the litigation. Doubtless as a result of tho court’s indicated views that Wiltsoe’s claim was no better than that of other creditors, and that the court owed an affirmative duty to notify creditors of the apparent maladministration of the estate, Wiltsee on July 33, 1925, moved that he be allowed to file, nunc pro tune, as of May 8, 1924 (the date of his original petition seeking information), a petition in behalf of himself and of other creditors who might thereafter join, charging maladministration, with many named particulars and with resultant prayers that the committee be held liable for the amount of assets misused, wasted, or dissipated by them, together with the reasonable expenses of the litigation. While counsel for the committee objected to the allowance of this petition, nunc pro tune, there was no other seasonable objection to its being filed. It was allowed, nunc pro tune. If necessary at all, it was at most but a formal assertion of Wiltsee’s contentions as to the legal results of the evidence adduced from the committee and their witnesses as to their administration of a receivership estate, of which Wiltsee and the other creditors were the chief beneficial owners. In effect, this petition was but a reassertion of contentions which had been under discussion throughout the trial. Parenthetically, the petition of July 28, 1925, stands as Wiltsee’s alternative assertion of his rights in case the petition of July 31, for creditors as a class, should for any reason fail. On July 31,1925, the evidence was closed, except that the right was reserved to Wiltsee to show his expenses for attorney’s fees, stenographer’s bills, etc., incurred, as he contended, in behalf of the creditors as a class and due to the maladministration by the committee. With this single exception, the trial was, so far as evidence was concerned, then a completed trial; neither Wiltsee nor the committee had,, except under equity rule 69'— which deals with petitions for rehearing — a right to offer further evidence either on the solvency, of the estate or on the liability of the committee. On August 7,1925, at the close of the oral arguments, the court stated orally at length conclusions of fact substantially the same as those afterwards embodied in the opinion of October 3, 1925. The legal results of the facts then stated counsel were asked to consider and brief. The court then said that, while withholding final judgment, there was no doubt that the trust estate had been damaged by maladministration to an amount in excess of Wiltsee’s claim and the reasonable expenses incurred in the litigation;' that if Wiltsee’s own claim was the only thing involved, there would be no hesitation in finding that the committee, or some of them, ought to pay Wiltsee’s claim and the expenses of the proceedings made necessary by the maladministration of the estate. Counsel for the committee were thus apprised some 20 days before the case was finally submitted on written briefs of the court’s main findings of fact, and that on the facts this court held the committee liable to Wilt-see and probably to other creditors for large sums. Yet in the light of these findings, the ease was briefed without suggestion (except that of Mr. Dodge as noted below) that it had not been fully heard and argued; or that, either as matter of pleading or as matter of evidence, the committee’s rights had not been fully secured. It is true that under date of August 31, 1925 (weeks after the case had been argued by other counsel and after the submission of elaborate briefs on both sides), Robert G-. Dodge, Esq., who had appeared for the committee during most of the trial, but had left for Europe before its completion, filed a reply argument in which he suggested, rather faintly and casually, that in these proceedings no decree for money damages could properly be entered — the first time any such point was raised. But the most of this final argument was devoted to the merits of the committee’s performances, and not to the form of remedy if they were held in the wrong. And not even then (a month before the filing of the opinion) was there any fault found with Wilt-see’s pleadings, nor suggestion that the committee desired to file new or additional pleadings or adduce further evidence in defense of their use of their admitted fiduciary obligation owed all creditors and parties in interest in the estate. If Mr. Dodge had then regarded this suggestion seriously, he would, of course, have then moved to dismiss the Wiltsee petitions; or he would have filed answers; and, if he thought additional evidence could have bettered his clients’ ease, he would have sought and obtained opportunity to present it. He did none of these things. He left this court to spend weeks in studying the record and in preparing an opinion on a case then submitted for the determination of the rights of parties litigant. The ease was argued and briefed- in August. The court’s opinion was filed on October 3,1925. A decree followed on October 8. Not even then was there a suggestion by counsel for the committee that the committee desired to change in any particular — either as to pleadings or as to evidence — the record that had been made during the forty days trial. On the contrary, the contention then made by the committee was that the decree was a final decree, which they desired forthwith to have, on the existing record, reviewed and reversed by the Court of Appeals. Mandamus proceedings to enforce that contention were instituted (9 E.[2d] 344), and delayed the proceedings in this court nearly three months, with substantial additional expense to Wiltsee. They now urge that they were contending before the Court of Appeals for a right to argue, as against an alleged final decree of this court, a record which was not even a partial trial — only “an investigation.” Never until January 23, 1926, were any motions or other pleadings filed by the committee suggesting that they had not had a full hearing on pleadings and evidence (both) satisfactory to them. On that day an answer, and various other pleadings which need not now be described in detail, were filed. The committee’s contention that only the receiver can enforce a liability against them comes, on analysis, to two propositions: (1) That creditors now in court should not be allowed to conduct their own litigation, by their own counsel, in accordance with their own theory of their rights; that the court should oust the parties in real interest and their counsel, and put its receiver in general eharge of their litigation.. (2) That the court should order its receiver to proceed for creditors who, after due notice, have indicated no desire to seek relief in these proceedings. This amounts to contending that the court has unduly limited the number and amount of claims against the committee — a complaint that can hardly be taken seriously. Creditors complaining of the committee’s maladministration cannot be deprived of their rights by the court’s failure or refusal to instruct its receiver to institute proceedings for uncomplaining creditors. Stockholders of the holding company (the only other persons having any conceivable interest in the receivership estate) do not, and apparently could not, assert a right in these proceedings to upset the settlement made with them. These stockholders, preferred and common, received through the reorganization common stock of the refining company (4 F.[2d] 397, 398) which took over all of the assets of their corporation. The holding company was then abandoned and probably went legally out of existence. Besides, these stockholders were, so far as appears in this record, Cochrane, Harper & Co. and their nominees, parties to the scheme of defrauding creditors, who had contributed about $3,000,000 to the oil enterprise, and were without standing in any court to attack the plan formulated, with their participation, to conceal and effect this fraud. Compare 9 F. (2d) 347. It conclusively follows that all parties in interest, having any claim to relief in these proceedings, are now before the court asserting their right, through their own counsel, to obtain relief for a breach of trust. Wherever, technically, the burden of proof lies, the result, on the indisputable facts in this case, is the same; for, as pointed out in the former opinion (8 F.[2d] 393), the controlling facts here) do not depend upon findings grounded on conflicting parol evidence, but appear in records, and are prae.tieally undisputed. Moreover, when contested issues have been fully heard, but upon pleadings _ which turn out to be inadequate, it is the uniform practice of courts to allow amendments at any time before judgment, bringing the pleadings into conformity with the evidence. Neale v. Neale, 9 Wall. 1, 19 L. Ed. 590; Washington, etc., Ry. v. Scala, 244 U. S. 630, 640, 37 S. Ct. 654, 61 L. Ed. 1360; Snyder v. Rosenbaum, 215 U. S. 261, 264, 30 S. Ct. 73, 54 L. Ed. 186. It is therefore unnecessary to consider whether this case falls technically under the rule laid down in such cases as Wood v. Farwell, 195 Mass. 559, 81 N. E. 294. Nor is it necessary to consider whether intervening creditors might now have a right to offer additional evidence on liability; for all such creditors join in the Wiltsee petition and rest their rights on all questions of liability on the record already made, limiting themselves merely to establishing their status under the decree of December 14, 1925. Counsel for all the creditors join in asking this court to rule that there has been a full trial of all questions of liability and that they are, on this record, entitled to a determination of their rights by this court and by the court above. This request is granted. The committee also urge that the deposit agreement of November 15, 1922, bars all creditors (except Wiltsee) of a remedy against the committee, unless and until it be set aside on an independent bill in equity brought by the creditors themselves against the committee. This proposition is untenable. This deposit agreement was, in effect, a power of attorney coupled with an interest, under which the committee as fiduciaries took legal, but not beneficial, title to the notes and claims of depositing creditors, for the purpose of representing them in court, in order to promote, through the court, a contemplated reorganization of the receivership estate in the interest of the beneficial owners thereof,The agreement did not contemplate a reorganization in pais; it did contemplate that the committee should, by invoking action by the court, cause the depositing creditors to receive, in some form, in lieu of their debt claims, the full and fair equivalent of their beneficial interests in the receivership res. While the deposit agreement contains elaborate provisions limiting the committee’s liabilities, it does not and could not legally limit their liability for their own fraud. As this court has already found fraud both in the methods used in- obtaining these deposits and in the use made of them in the court proceedings (8 F.[2d] 411, 419, 420), and has also found that the plan of reorganization authorized by the court was never effected by the committee, it is clear that the case is radioally different from that of Habirshaw Elec, Cable Co. v. Cable Co. (C. C. A.) 296 F. 875, relied upon by the committee.'' Moreover, after having obtained such deposits wrongfully, and used them wrongfully to promote interests adverse to those of their eestuis, the committee, in May, 1923, declared the agreements terminated. It may be eon-ceded that such termination could not have invalidated acts done under the deposit agreements if they had been legally obtained and properly used. But it is too clear for argument that the committee cannot now resurrect them and plead them in bar of the creditors’ rights to have, through the instrumentality of the court that held their property in trust, the equivalent of the rights they had when the eommitttee obtained control of the receivership estate. The case bears close analogy to that of Haines v. Buckeye Wheel Co., 224 F. 289, 139 C. C. A. 525, on appeal, 233 F. 665, 147 C. C. A. 473, certiorari denied, 242 U. S. 643, 37 S. Ct. 213, 61 L. Ed. 542. See, also, In re Veler, 249 F. 633, 161 C. C. A. 543. Harrigan v. Gilchrist, 121 Wis. 127, 99 N. W. 909, is a learned and instructive opinion. The committee argue that the receiver, Mr. Garfield, had some knowledge of the reiations of Smith, Chace, and the Tanker Syndicate to the plan of reorganization; that the receiver’s knowledge, if obtained after his appointment as such, -is imputed to the court; and that, therefore, the court was not, as matter of law, deceived as to the relations of the reorganizers to the Tanker Syndicate. The proposition that a receiver’s knowledge is, without actual disclosure, to be imputed to the court in charge of a receivership, seems to this court too untenable to call for discussion. The stress laid upon the receiver’s alleged knowledge and upon his argued disclosures to the court makes it appropriate to reaffirm the statement made in the former opinion (8 F.[2d] 402) that, “Neither in pleadings, nor in any other court papers, nor orally, was the substance of the real plan of reorganization, and the relations of the parties formulating the scheme, brought to the attention of the court responsible for the administration of this estate.” ‘ Neither directly nor indirectly was any disclosure made by the committee, or by the . receiver, to the court, in any way inconsistent with the express representations made by the committee, when seeking to become parties to the proceedings, that they were a committee representing noteholders, and thus by necessary implication representing no adverse interests. 8 F.(2d) 399. Rarely does a court have a receivership in which, as the ease is presented to it, its affirmative duties appear to be more narrowly limited. When, in the fall of 1922, the writer first heard of the existence of this receivership (constituted by-Judge Mack in July, 1922),. he learned that the receivership covered merely a holding company and not an operating comp&ny. The court was early informed that bankers, presumably having for their banks an interest in the enterprise, would shortly present themselves as a committee to undertake a reorganization of the concern. The duties of the court appeared to be (1) to see that the committee, when it presented itself, was made, on the record, responsible for the use of the powers it sought; (2) that adequate notice was given to every party in interest, so that any differing views as to the plan suggested by the committee might be submitted to the court; (3) to decide such questions if presented. But none were presented, After the approval of the plan, under which the committee, purporting to represent most of the beneficial interests in the» eompany, sought and obtained almost complete eontrol of the receivership res, little remained fol-the court except to enter, pro forma, decrees for effecting the committee’s plan. This was. the exterior appearance of the ease, It is suggested that the court learned at some time that there was a Tanker Syndicate claim of some $18,000,000, and that for some inscrutable reason that fact should have made the court suspicious of the qualifications and conduct of the committee — conduct to which nobody was objecting — and thus have led to a critical investigation of the whole situation, It is true that at some time, probably in March or April, 1923, the court was informed by its receiver that a claimant called the “Tanker Syndicate” (the name meant nothing fo, the court) had filed a claim for some $18,000,000, the allowance of which the reeeivers did not recommend. That put this claim in the same category as the Wiltsee claim — one that the court must be prepared to try on evidence. The natural inference was that the committee would defend the estate against this claim as they did against the Wiltsee claim, (C. C. A.) 3 F.(2d) 424, 425. To have permitted ex parte statements from the receiver as to the nature and merits of a claim likely to. be tried would have been obviously improper, and the receiver made no such statements. The court believed the committee to be what they said they were — faithful and fully qualified representatives of the chief beneficial owners of the court’s trust estate. The receiver never disclosed anything to the court inconsistent with that view. But even if Mr. Garfield had been, as he was not, cognizant of the committee’s wrongdoing, it would not have exonerated them from their own direct responsibility to the court and to their cestuis que trust. The attempt of the committee now to hide behind Mr. Garfield’s alleged knowlfedge has neither moral nor legal standing. In fact, he had, seasonably, very little knowledge of the real situation. Finally, in order to prevent these creditors from having, in this proceeding or on this record, any decision as to their rights against the committee, counsel for the committee have resorted to tactics which this court feels compelled to say seem quite unjustifiable. ■ This aspect of the matter should be dealt with — - if afetion is necessary — by some other judge or tribunal. Cooke v. United States, 267 U. S. 517, 539, 45 S. Ct. 390, 69 L. Ed. 767; Cornish v. United States, 299 F. 283; Coll v. United States, 8 F.(2d) 20, 24. Although declining, as noted above, to file any petition for a rehearing in order to supplement the existing record, the committee have offered evidence on the theory that they are entitled to a trial de novo on the general issue of their liability. As stated above, the creditors contend that they are entitled to a determination of their rights on this record, except and unless supplemented by a rehearing on a petition filed under the rule; they therefore object to evidence offered, on the theory of a trial de novo. In this position, the creditors are, in the opinion of this court, correct. Accordingly, all evidence offered under this theory has been excluded. Of course, all evidence bearing upon the status of intervening creditors, coming in under the decree of December 14,1925, has been admitted. None of the other contentions of the committee seem to call for discussion. The main questions, then, arise on the findings set forth in the former opinion. But counsel for the creditors now urge that in two aspects the findings and conclusions in that opinion should be amplified: (1) As to the genesis and voidability for fraud of the Tanker contract; (2) As to the solvency of the receivership estate. When the case was submitted in August, 1925, the bearing of the Tanker contract upon the main issue in this case was not fully argued. A corrupt motive was the inescapable suspicion. What that motive was, was not discerned; for there was then no adequate analysis of several votes in the records of the corporations which are now seen to show the actuating motive. . Under these circumstances, in preparing that opinion for a merely interlocutory decree (a leading feature of which was to notify creditors of their rights and give them an opportunity to elect whether to assert them), it seemed unnecessary to go farther than to say, as to this contract: “Whether voidable for fraud or not, it was a transaction that should have been fully disclosed to the court and to its intended victims, the ebief beneficial owners of the receivership estate. The committee had no right to conceal it and to use their powers, as trustees of the assigning beneficial owners and as appointees of the court, to affirm and effectuate it. While not, as a committee, responsible for making it, thoir later conduct fell little short of full adoption.” And, “What induced, or compelled, the directors of these oil corporations to enter upon this contract, does not clearly appear. No director voting for it, except Palmer and Cochrane, has been called to explain the transaction. It remains unexplained, and upon the present record does not appear susceptible of anjhonest explanation.” 8 F.(2d) 407, 406. While, of the directors voting for this contract, Palmer and Cochrane were called as witnesses, the implication that those directors were “called to explain the transaction” is, when their testimony is carefully reviewed, not accurate. In fact, there is practically no parol evidence in the entire record bearing upon the motives leading the directors of these oil corporations to vote to make these companies liable for $17,271,000 for tankers which no one at that time, as Farley’s letter shows, oven argued to be worth half that sum. 8 F.(2d) 405. But counsel for Wiltseo have now analyzed records which show plainly the motives that led Cochrane and other directors to vote thus to turn over the property of the oil companies to the Tanker Syndicate. To appreciate the significance of the evidence on this point, it is necessary to go back to 1920, when the holding company authorized an issue of $8,000,000 of the 8 per cent, convertible gold notes. At that time, the promoters, Cochrane, Harper & Co., apparently owned all of the stock of the holding company. They also undertook to market $6,-000,000 of this $8,000,000 of notes, at 89 net. to the holding company; the notes seem to have been turned over in installments and paid for as the marketing went on. In March, 1921, Cochrane, Harper & Co. desired to obtain possession, and apparent ownership, of a block of $616,000 of these notes, without then paying or obligating themselves (directly) to pay therefor at the agreed price of 89. The transaction appears first in the record of a meeting of the executive committee of the oil corporation, on March 18, 1921, present: Llewellyn Howland, J. W. Perkins, and John P. Bowditch. Three days later Bowditeh resigned, and Allan Forbes was made a member of the committee. At another meeting on March 21, 1921 (Perkins, Howland, Forbes, Cochrane, and Harper present), it was voted: That the transaction of March 18 be ratified, adopted, and'approved and confirmed. The transaction is shown by two letters each dated March 18, the first from Cochrane, Harper & Co. as follows: “New England Oil Corporation, 19 Milk St., Boston, Mass. — Dear Sirs: In conformity with our verbal agreement with you, we hereby .deliver to you, securities, a list of which is hereto annexed, in full payment for $616,000 principal amount of the five-year eight per cent, convertible gold notes .of your corporation at 89 and accrued interest. “In case you should sell the securities, either as a lot or in parcels from time to time, we will, on or before January 1,1922, pay you the difference, if any, between the aggregate price which you receive for all of said securities and the sum of $548,240, plus an amount equivalent to the accrued interest on said amount of notes, or we will, at your request, repurchase, on or before January 1, 1922, all of the said securities at not less than the said sum, plus said interest. “Tours very truly, “Cochrane, Harper & Co.” 40 shs. Architects Sample Corp. Pfd. 230 “ Commercial Trust Co. 400' “ Forbes-Perkins Co. 672 “ Kleskun Ranch, Ltd. 22,109 “ Lamson & Hubbard Corp. Com. 2,655 “ Lamson & Hubbard Can. Co. Ltd. M 12,994 “ Tex-Kan Off Corp. 350 “ Washington Oil Co. $3,000 Phyllis Navigation Co. Bonds 38,000 Marine Operating Co. it 5,000 Nova Scotia Trans. Co. if 57,000 French American Ser. A it 47,000 French American Ser. B. it 18,000 Norland Line First Mtge. it 20,000- ■ Norland Line Second Mtge. . H The reply is as follows: “Messrs. Cochrane,. Harper & Co., 60 State St., Boston, Mass. — Gentlemen: We acknowledge -receipt of your letter of even date, together with the list of securities attached. In accordance with our understanding, we aeeept these securities in payment of $616,000, principal amount of five-year eight per cent, convertible gold .notes of our corporation. “We understand that part of the consideration for this transaction is your obligation to reiinbtxrse us for any difference between the total price which we may obtain for all of the said securities and the sum of $548,240, plus interest accrued on said notes or at our request to repurchase the said securities at the price as stated in your letter. “Very truly yours, “New England Oil Corporation, “By Samuel Vaughan, Treasurer.” This was an agreement between the holding company and Cochrane, Harper & Co. to sell Cochrane, Harper & Co. a block of 8 per cent, notes ($616,000) taking “in payment” this lot of “securities,” with what was in effect an agreement that Cochrane, Harper & Co. should take these “securities” back and pay for them on or before January 1, 1922. Counsel for the committee concede that these “securities” were worthless. It follows that the “payment” was no payment; and that Cochrane, Harper & Co. were bound to pay to the holding company on or before January 1,1922, $548,240 with interest, apparently at 8 per cent, from June 1, 1920 — nearly $600,-000. This firm was also, as the records show, in November, 1921, under obligation to take and pay for at 89 net the balance of $560,000 of the $6,000,000 of the 8 per cent, notes. Hence, in November, 1921, this firm owed nearly $600,000 for 8 per cent, notes they'had already received and marketed or used for their own purposes, and were under an additional obligation to take and to pay for another block of $560,000 of the same notes, at 89, an aggregate of over $1,000,000. Moreover, six months interest (4 per cent., about $220,000) fell due on December 1,1922, on $5,440,000 of the 8 per cent, notes of the holding company then outstanding, and the corporation was without the funds to meet this interest. Clearly, if the interest on the note issue was defaulted on December 1, while Cochrane, Harper & Co. were the debtors to the holding company for nearly $600,000', which debt — m form but not in fact — they had “paid” by the delivery of worthless seeurities, a very embarrassing situation to these promoters would have resulted. Their relations to the Boston banks at this time are not clearly disclosed; but the fair inference is that the banks held Cochrane, Hairper & Co.’s paper for substantial amounts, with oil corporation 8 per cent, notes as collateral; their financial status at that time is not clearly shown, but they settled with their creditors in 1923. It was under these '(unpleasant for him) conditions that Cochrane entered into negotiations with Smith and Chace for the purchase of these seven tankers. Just how much Smith, Chace and the Old Colony Trust Company had then sunk in the worthless second mortgage bonds on these tankers does not appear. As a result of the negotiations, the Tanker Syndicate agreed to loan to the Refining Company $1,300,000 repayable in monthly installments extending over TO years with interest at 8 per cent. But about $500,000 was agreed to be shortly repaid (as it was), out of the proceeds of a public issue of $520,-000, 7 per cent, notes floated on the credit of the Refining Company and guaranteed by Smith’s concern. This issue cut under the outstanding notes of the' holding company. This left $800,000 as the real intended loan by the tanker! interests. Votes relative to this $800,000, not understood in August, 1925, have, in the light of these circumstances, acquired great significance. On November 28, 1921, at a meeting of the directors of the Refining Company (8 F.[2d] 405), after voting the tanker contract, the record proceeds (Exhibit 3): “It was pointed out to the meeting that in order to enable this company to perform said contract with Tanker Syndicate, Inc., it was necessary to obtain the guaranty of the New England Oil Corporation to the said contract together with one hundred thousand (100,-000) shares of its common stock, and certain other securities. “Thereupon, upon motion duly made and seconded, it was unanimously' “Resolved: That the treasurer or assistant treasurer of this company be and he is hereby authorized and directed to offer in the name and on behalf of this company to purchase from the New England Oil Corporation one hundred thousand (100,000) shares in the capital stock of said New England Oil Corporation for the sum of two hundred and twenty-two thousand dollars ($222,000); to purchase from said corporation for the sum of five hundred seventy-seven thousand eight hundred and thirty-eight dollars and thirty-four cents ($577,838.34) with interest at the rate of eight per eent. (8%) per annum on five hundred and ninety-four thousand nine hundred and thirty-two dollars and fifty-nine cents ($594,932.59.) from December 1st, 1921, until the actual date of the delivery of said securities the following named securities: [Here follows a list obviously intended to be the list stated in the letter of March 18,1921, for it is so referred to in the accepting vote of the holding company below. The discrepancies are for present purposes immaterial,] and to pay to said New England Oil Corporation an amount equal to the difference between eight hundred thousand dollars ($800,-000) and the sum of the amounts paid for said stock and securities in consideration of its guaranty of the contract with the Tanker Syndicate, Inc., this day authorized. And in the event that the New England Oil Corpora^ tion shall accept the said offer the treasurer or assistant treasurer of this company be and he hereby is authorized to pay to the said corporation the aggregate principal sum of eight hundred thousand dollars ($800,000) upon the performance by the said corporation of the various things to be by it performed in accordance with the terms of .the said offer. “(Mr. Cochrane, Mr. Harper, and Mr. Farley not voting.) “Upon motion duly made and seconded it was unanimously “Resolved: That in accordance with the suggestion of Malcolm G. Chace in his letter to this company and to the said corporation dated November 25, 1921, the treasurer be and hereby is authorized to deliver said securities referred to in the above vote, other than said one hundred thousand (100,000) shares of common stock of New England Oil Corporation, to Cochrane, Harper & Co. “(Mr. Cochrane, Mr. Harper, and Mr. Farley not voting.) “Upon motion duly made and seconded, it was unanimously “Resolved: That in the event that the New England Oil Corporation accepts the offer above authorized and transfers to this company or its order the said one hundred thousand (100,000) shares of the common stock'of said New England Oil Corporation, the treasurer or assistant treasurer be and hereby is authorized to deliver said one hundred thousand (100,000) shares of the common stock of the said New England Oil Corporation to Old Colony Trust Company of Boston in escrow on such terms and arrange.ments as the treasurer may determine. “(Mr. Cochrane, Mr. Harper, and Mr. Farley not voting.)” This sum of $222,000 thus put into the treasury of the oil corporation was obviously for the purpose of meeting the December interest on the $5,440,000 of notes then outstanding. But with the balance of the $800,-000 the Refining Company voted to buy from the Oil Corporation (the holding company) the worthless securities delivered on March 18.1921, by Coehrane, Harper & Co. “in payment” for a block of $616,000 par of the 8 per cent, notes. At a meeting of the directors of the Oil Corporation held on the same day, November 28, 1921, present F. Douglas Cochrane, George W. Treat, Llewellyn Howland, Allan Forbes, John F. Perkins, John W. Farley, Bradley W. Palmer, R. M. H. Harper, Gas-par G. Bacon; after passing other votes authorizing the tanker contract, the record proceeds as follows: “Upon motion duly made and- seconded it was “Resolved: That this corporation accept the offer of the New England Oil Refining Company to purchase from this corporation one hundred thousand (100,000,) shares of its common stock for the sum of two hundred and twenty-two thousand dollars ($222,000), and to purchase from this corporation the securities now held by it in accordance with the terms of its agreement with Cochrane, Harper & Co., dated March 18, 1921, for the sum of five hundred and seventy-seven thousand eight hundred and thirty-eight dollars and thirty-four cents ($577,838.34) with interest at the rate of eight per cent. (8%) per annum on five hundred and ninety-four thousand nine hundred and thirty-two dollars and fifty-nine cents ($594,932.59) from December 1.1921, until the actual date of the delivery of said securities and to pay this corporation an amount equal to the difference between eight hundred thousand dollars ($800,000) and the sum of the amounts paid for said stock and securities in consideration of its guaranty of the said contract between the New England Oil Refining Company and the said Tanker Syndicate, Inc., being an aggregate payment of eight hundred thousand dollars ($800,000) in respect of the various acts to be performed by this corporation in accordance with the terms of the said offer. “Upon motion duly made and seconded it was “Resolved: That in accordance with the terms of the agreement of March 18, 1921, the securities therein referred to having been sold for the amount guaranteed, Coehrane, ■Harper & Co. have* prior to the date of this meeting, ceased to be and now are no longer under any liability of any name or nature in connection with said agreement; and that the treasurer or assistant treasurer be and hereby is authorized and directed to notify Coehrane, Harper & Co. to that effect, and to execute and deliver a release discharging them from any and all obligations under said agreement, said release to be in such form as the said Cochrane, Harper & Co. may request. “Mr. Coehrane and Mr. Harper not voting.” This was thus in form a sale of the worthless securities to the refining company for the amount due from Cochrane, Harper & Co. for the block of $616,000 of the.8 per cent, notes. As a result of this transaction, the worthless securities became the property of the Refining Company, and the directors of the Refining Company voted (as stated above) that, pursuant to a suggestion contained in a letter of Malcolm G. Chace (called for but not produced), these securities should be delivered to Coehrane, Harper & Co. There is nowhere any suggestion that this firm should, or did, in any form, pay to either corporation anything for these securities, or for the original liability incurred by them when this block of $616,000 of 8 per cent, notes was delivered to them. It follows that “about $4,836,-000 derived from the purchasers of the holding company’s 8 per cent gold notes” (8 F. [2d] 403) should be reduced by nearly $600,-000. In result the transaction was a gift of this block of $616,000 notes to Coehrane, Harper & Co. There is another vote to release this firm from any obligation to take and pay for the $560,000 remaining of the $6,000,000 of the 8 per cent, notes. This put Cochrane, Harper & Co. out of the financing; the Tanker Syndicate took it over. Smith, Chace, Palmer, and Forbes were all participants in this transaction. This court can see no escape from the conclusion urged by counsel for the creditors that the essence of this transaction was an arrangement that Coehrane, Harper & Co., who with their associates and employees on the board of directors dominated the oil enterprise, were by the Tanker Syndicate thus relieved from personal liability for nearly $600,000, in consideration of their causing their corporation to vote to buy these tankers for $17,271,000. Put bluntly, this amounts to bribing the controlling directors of the purchasing corpo- ■ rations to commit a gross breach of trust by turning over the bulk of the property of their corporations to the Tanker Syndicate. The .chief victims were of course the stockholders of the refining company; and mainly on that stock rested the notes for $5,440,000 of the holding company. That these directors did not pass these votes blindly or inadvertently, assuming that Cochrane, Harper & Co. were, as the stockholders of the holding company, in effect dealing only with their own property, is made entirely clear by the language in Farley’s letter of November 19,1921, parts of which are quoted in the margin in the former opinion (8 F.[2d] 405); for Farley then said, referring to the liabilitj under the Tanker Contract (Exhibit 132): “This will he an obligation of the Refining Company, ahead, of course, of the stock, and ahead of the New England Oil Corporation notes which are based on the stock of the Refining Company, and in ease of default will unquestionably cut out the oil corporation notes from any interest in the property.” But, after writing this warning, which, in effect, stigmatized the whole transaction as'a fraud upon the note-holders, Farley and all the other directors (except Treat) voted for the tanker contract. Farley’s whole letter must be read and construed in the light of the circumstances to appreciate fully the sinister significance of the transaction. Further support for the construction put by counsel for the creditors upon these records is found in evidence — briefly and inadequately considered near the close of the hearing last summer. At that time, when the treasurer (called by the committee) was explaining certain accounts, inquiry was made as to the meaning of a phrase in one of the reports showing the status of the enterprise on December 31,1922: “Payments on Tanker Fleet and cost of acquiring contract, $1,167,778.” As it elsewhere appeared that the “payments made on Tanker Fleet” in 1922 wore $650,474, $517,304 was left as the apparent “cost of acquiring the contract.” The court requested the witness to ascertain and explain the next day this unusual item and term. This was not done. On the contrary, the witness, the night before his promised explanation, notified counsel for the committee that he was going to New York. The significance of his failure to appear and explain the item and the term was not then appreciated. But taken now in connection with the records 'above sketched and other evidence which need not be detailed, the inference is irresistible that the loss to the oil enterprise accruing from releasing Cochrane, Harper & Co. from their obligation to pay at 89 for the block of $616,000 of the 8 per cent, notes was, in large part, charged off under the term “cost of acquiring tanker contract.” It is true that the figures cannot he reconciled exactly. But there were so many necessary adjustments of interest and other items, that exact accord could not bo expected. The same item may probably be concealed under the term, “Loss on sale of securities $2,400,635.65,” found near the end of the liability column in the receiver’s consolidated balance sheet. 8 F.(2d) 397. The “cost of acquiring the contract” item cannot be explained as the bonus to Chace for buying the government’s mortgage for $2,-940,000; for his alleged bonus of $346,000 (and more) is covered in the alleged adjusted price as of January 1, 1922, $8,451,000; for the second mortgage bonds were (if all procured by the Tanker Syndicate) only $4,421,-000, and the price paid to the government $2,940,000, an aggregate of $7,361,000, which leaves $1,090,000 to cover bonus and all possible adjustments of interest and expenses. A vote to pay out of other people’s money (and that is what the directors of this oil enterprise were undertaking to do) $17,271,-000 for tankers not claimed to be worth half that sum, and then intended to be bought, and a little later actually bought, from the United States government for $2,940,000*, falls in and of itself little short of being conclusively fraudulent upon bona fide investors in the oil enterprise. And when such an unconscionable price is to he paid entirely out of other people’s money, and the agreement to pay it is in reality effected even if not technically voted by directors who, as a part of the same transaction, are relieved of personal liability for nearly $600,000 the inference of fraud is irresistible. In financial result to the oil enterprise the transaction was substantially as though it had bought the worthless second mortgage bonds at their face, $4,271,000, and also agreed to pay Chace about $1,500,000 for buying the tankers from the government for $2,940,000. The purchase of the tankers was, in essence, but a gloss for the purchase of the second mortgage bonds. No such transaction was ever authorized by a sane set of directors, acting for the benefit of their corporations and not for the benefit of some or all of the directors. There is much other evidence forcing the mind to the same result. The necessary conclusion is that the tanker contract was not merely questionable, a transaction that any competent and faithful set of fiduciaries would have fully disclosed to the court and to their cestuis, its intended victims; it was plainly fraudulent and unenforceable. The responsibility of the committee for concealing it must be weighed in the light óf this finding and ruling. On this branch of the case counsel for the creditors request findings and rulings as follows: ■ • (1) The tanker contract of November 29, 1921, was procured by fraud, and was therefore a voidable contract. (2) The Tanker Syndicate, Inc., knew that of the $1,300,000, to be advanced by it under the said tanker contract, about $600,-000 was to be used to bribe Cochrane and his associates to vote for the execution of the tanker contract, and it could not have recovered either from the Refining ‘Company or the Oil Corporation the $1,300,000 so advanced. (3) At the time of the so-called reorganization, the noteholders’' committee’s counsel, Bradley W. Palmer, and at least two of its members, Messrs. Hart and Forbes, knew, or should have known, at the outset that the original tanker contract was obtained by fraud, and was therefore voidable. One of the court’s receivers, Gaspar G. Bacon, also' knew of this, as did Malcolm G. Chace, one of the syndicate managers, which. simply made up a subcommittee of the noteholders’ committee. The other members of the committee shortly thereafter knew, or should have known, that the said contract was voidable, because it had been procured by fraud. (4) Noteholders’ committee, by permitting further payments to the Tanker Syndicate, Inc., from the proceeds of the sale of the general mortgage bonds, allowed the Tanker Syndicate, Inc., to receive up to March 1, 1923, about $4,000,000, the Tanker Syndicate, Inc., receiving the repayment in full of the $1,300,000 which it could not have recovered, — about $1,755,491.06 on or about March 1, 1923, and had received $658,851.80 during', the year 1922. There was the further payment by the refining company of over $500,000 in the year 1922, as cost for acquiring the contract. These requests must in their substance