Frank Murphy

Name: Comstock v. Group of Institutional Investors — Dissent
Author: Frank Murphy

Comstock v. Group of Institutional Investors…

Summary

“Comstock v. Group of Institutional Investors — Dissent”, is a work by Frank Murphy. It explores elements such as subsidiary, dividend and Deep Rock.

Quotes from Comstock v. Group of Institutional Investors… (Frank Murphy)

Frank Murphy, Comstock v. Group of Institutional Investors…

“ Standard Gas & Electric Co., supra, this Court established the principle that where a parent corporation has not only dominated but has mismanaged a subsidiary corporation, which is presently in bankruptcy or reorganization, and where the parent has a claim which is intimately related to the mismanagement, a court may refuse to permit the parent to assert the claim as a creditor except in subordination to the claims of the subsidiary's other creditor and preferred stockholders. This principle, which has become known as the Deep Rock doctrine, is equitable in nature. ”

[↩︎]

Source: Wikisource

Frank Murphy, Comstock v. Group of Institutional Investors…

“ Whenever it was found that NOTM had inadequate income to meet a prospective dividend payment, MOP officers would direct Brownsville, NOTM's principal subsidiary, to take steps to declare a dividend on its stock, all of which was held by NOTM. Usually this dividend was the precise amount by which NOTM lacked money to pay its own dividend. [2] But Brownsville invariably was unable to make a cash payment of its dividends to NOTM and many of its pre-1931 dividend declarations were considered collected by NOTM only at the expense of leaving unpaid Brownsville's debts to NOTM for essential supplies. ”

[↩︎]

Source: Wikisource

Frank Murphy, Comstock v. Group of Institutional Investors…

“ Subordination of the claim would thus tend to make the NOTM stock more valuable and to make possible a realization of MOP's express pledge to its bondholders. True, creditors of MOP other than the bondholders would be unable to benefit from whatever could be collected on the claim. But they were not the recipients of a pledge of NOTM stock and they lacked the immediate interest that the bondholders had in a proper performance of MOP's fiduciary duties. The indirect loss they would suffer by subordination is outweighed by the direct injury to the bondholders as a result of allowing the claim. ”

[↩︎]

Source: Wikisource

Frank Murphy, Comstock v. Group of Institutional Investors…

“ The fact that a $100,000 cash dividend is paid three days after the $100,000 loan is thought to be a mere coincidence, the dividend and the loan having no connection.
But in this illustration it is obvious that NOTM has insufficient cash to finance both the $200,000 freight yard and the $100,000 dividend. It has to borrow money for one purpose or the other. But to say that it here borrows $100,000 to help pay for the freight yard is unrealistic. NOTM has enough cash to pay for the freight yard and it uses the cash just for that purpose. ”

[↩︎]

Source: Wikisource

Frank Murphy, Comstock v. Group of Institutional Investors…

“ It appears that MOP had acquired the controlling interest in NOTM's common stock in 1924 and had completely dominated and controlled NOTM until the reorganization proceedings began in 1933. MOP's claim against NOTM was based upon 'cash advances for operation, interest payments, etc., at various times from March, 1929, to February, 1933, both inclusive.' Most of the NOTM stock which MOP held was pledged as security for the class of MOP 5 1/4% secured bonds which Comstock owned, the pledge constituting 82% of the outstanding shares of NOTM's sole class of stock. ”

[↩︎]

Source: Wikisource

Frank Murphy, Comstock v. Group of Institutional Investors…

“ The Commission should determine the applicability of the Deep Rock doctrine to railroad reorganization plans which it formulates. But since the Commission had previously refused to adjudicate the merits of the MOP claim and since Comstock's objection has been thoroughly aired in the District Court, it is inappropriate to remand the case now to the Commission for an expression of its views. ”

[↩︎]

Source: Wikisource

Frank Murphy, Comstock v. Group of Institutional Investors…

“ The earned surplus upon which the Court today places great reliance in affirming the District Court's findings was but a figment of the MOP imagination. 'The intricate accounting devices evolved by railroad and holding company officials in an attempt to legalize dividend payments unjustified by earnings resulted, both in 1930 and 1931, in the payment of N.O.T. & M. devidends out of capital, a procedure disguised in 1930 behind faulty bookkeeping and in 1931 behind an out-and-out violation of Interstate Commerce Commission accounting regulations.' S.Rep. No. ”

[↩︎]

Source: Wikisource

Frank Murphy, Comstock v. Group of Institutional Investors…

“ Geist, 316 U.S. 89, 97, 62 S.Ct. 978, 983, 86 L.Ed. 1293. But they are not necessarily decisive in all cases. The equities of a particular situation may turn upon something more than the solvency or insolvency of the parent. ”

Frank Murphy

Summary

Quotes from Comstock v. Group of Institutional Investors… (Frank Murphy)

Common terms

Similar works

Get perspective with Kwize: daily news enlightened by great literature