Aladdin Hotel Co. v. Bloom

Aladdin Hotel Company (Aladdin) (defendant) issued a series of bonds that were to be paid on September 1, 1948. The bond indenture provided that the payment date of the bonds could be modified if bondholders owning at least two-thirds of the value of the bonds agreed to the modification. The bond indenture also explained that a bondholder had to ask the indenture trustee to enforce the terms of the bonds and that a bondholder could not file a lawsuit unless the trustee refused a request made by owners of at least 20 percent of the value of the bonds. Members of the Jones family (the majority bondholders) (defendants) owned over two-thirds of value of the bonds issued by Aladdin. Aladdin experienced financial problems, and the majority bondholders agreed to extend the payment date of the bonds to September 1, 1958. Josephine Loeb Bloom (plaintiff) filed a lawsuit in federal district court against Aladdin and the majority bondholders on behalf of herself and other minority bondholders, seeking to invalidate the bond modification. Bloom did not ask the indenture trustee to institute a lawsuit before filing her lawsuit. Bloom argued that the modification was invalid because it deprived Bloom and the other minority bondholders of their rights under their bonds. The district court ruled in favor of Bloom, holding that the majority bondholders inappropriately made modifications to the bonds for their benefit and Aladdin’s benefit but not for the benefit of the minority bondholders. The majority bondholders and Aladdin appealed.