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February 26, 1940


The opinion of the court was delivered by: LUHRING

The interveners, W. Bissell Thomas and William B. O'Connell, have filed two motions herein which were heard together on the 10th day of February, 1940.

The first motion, filed July 8th, 1939, suggests that the court sua sponte vacate orders and decrees heretofore entered, and make "such further orders and decrees as to equity may seem meet on the facts, all apparent on the face of the record, to which attention of the court is respectfully directed." This motion was filed during vacation and was not brought to the attention of the court until several months later.

 The second motion, filed December 14, 1939, is "to set aside sale of mortgaged property, sequester the same and for other relief."

 The Washington Properties, Inc., owner of the property, appears in opposition to the motions.

 Each of the motions seeks a review of the record herein, and the relief sought is based on matters contained in the record. A synopsis of the record is appended to each of the motions. The contention of the interveners is generally stated in the first motion as follows: "The facts conclusively disclose (they are no where denied) that this was a collusive proceeding instituted in accordance with a corrupt agreement entered into or later joined by all the parties who financially benefited, not only to defraud the First Mortgage Bondholders, but also to perpetrate the fraud upon this Court. The entire record shows that all the parties to this proceeding, as well also as the parties connected with the entire foreclosure and reorganization, conspired together to carry out a pre-conceived plan, not only to commit a fraud upon this Court but to cheat the First Mortgage Bondholders out of property lawfully belonging to them, and that by reason of their acts they had not come into equity with clean hands."

 The bill to foreclose was filed in this court July 14, 1931 by the Central Hanover Bank and Trust Company and Frank Wolfe, Trustees, against Wardman Real Estate Properties, Inc. On the same day the defendant, Wardman Real Estate Properties, Inc., filed its answer in the suit admitting the averments of the bill to be true and consenting to the appointment of a receiver as therein prayed.

 Afterwards, on July 24, 1931, the bill was amended by making the Riggs National Bank of Washington, D.C., a junior mortgagee, an additional party defendant.

 On July 29, 1931, Alfred C. Torgeson intervened. His petition alleged certain fraudulent methods pursued by the New York bankers in the transaction, and prayed that they be made parties defendant and judgment rendered against them for the losses of the bondholders; that an order theretofore made appointing receivers pendente lite be rescinded, and another receiver appointed, wholly independent of and disconnected with the New York bankers; and that the trustees be enjoined and restrained from foreclosing "until the independent bondholders, freed from the domination of the bankers and the alleged bondholders' committee formed at the instance and for the protection of the said bankers, shall have had time to formulate and submit a feasible plan of reorganization in the interest of said bondholders."

 On August 3, 1931, a bondholders' protective committee, by leave of court, filed an intervening petition alleging that such committee represented 74 per cent of all of the bonds issued and outstanding; that the averments of the bill of complaint are true and asked that the prayer of the bill be granted.

 Upon these issues a trial was had by the court, and on October 14, 1931, a decree of foreclosure and sale was entered. There was no appeal from this decree.

 After a number of postponements, the mortgaged property was offered for sale on October 21, 1932 and sold to Milton Schelbach and Paul Brunn at $2,800,000, subject to encumbrances amounting to $4,000,000. The purchasers immediately assigned, transferred and set over into the Washington Properties, Inc., representing the bondholders, all their rights under the bid. After due notice a report was made to the court on October 24, 1932.

 On October 26, 1932, W. Bissell Thomas, as special intervener, filed a motion and petition to the court to set aside the sale of the property reported by the trustees. On October 28, 1932, William B. O'Connell, intervener, by leave of court, filed a petition objecting to the confirmation of the sale. On October 28, 1932, Alfred C. Torgeson, intervening petitioner, also filed objections to the confirmation of the sale.

 The objections of the intervening petitioners are based on alleged fraudulent conduct of the New York bankers, not only in making the original loan and fraudulently inducing the public to subscribe to it, but also in the proceedings leading up to the foreclosure of the mortgage and sale of the properties. ...

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