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In re W.T. Grant Co.

699 F.2d 599 (1983)

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In re W.T. Grant Co.

United States Court of Appeals for the Second Circuit

699 F.2d 599 (1983)

Facts

Prior to 1973, W. T. Grant (Grant) (defendant) used commercial paper to fulfill its short-term cash needs. After experiencing financial difficulties, Grant began taking out long-term loans from various banks. In addition to bank loans, Grant issued debentures. Under the debenture agreements, the claims of the debenture holders (plaintiffs) were subordinated to the banks’ claims against Grant. At the time, a director of one of the lead banks was a member of Grant’s board of directors and its executive committee. The banks monitored Grant’s conduct and gave Grant advice. Grant filed for bankruptcy. Under the settlement agreement, the debenture holders were to receive 19 cents for every dollar they were owed. The debenture holders filed a lawsuit against Grant, arguing that the banks controlled Grant and that their claims should be equitably subordinated to the claims of the debenture holders. The district court held that the settlement agreement was reasonable. The debenture holders appealed.

Rule of Law

Issue

Holding and Reasoning (Friendly, J.)

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