## Facts

- In 1938, Aladdin Hotel Company (Aladdin) issued 647 bonds totaling $250,000 in principal, due September 1, 1948.
- Interest was 5% per year, payable only from net earnings until maturity, and 8% per year after maturity until paid.
- The bonds were secured by a deed of trust on Aladdin’s Kansas City hotel real estate, furnishings, and fixtures.
- Mississippi Valley Trust Company served as trustee under the deed of trust.
- The bonds and deed of trust allowed holders of at least two-thirds in principal amount, by agreement with Aladdin, to modify and extend the payment date, provided the extension “affected all bonds alike.”
- The deed of trust also limited bondholder litigation: enforcement actions were to be pursued through the trustee, and individual bondholder suits were barred unless the trustee refused to act after a request by holders of at least 20% in principal amount.
- Members of the Jones family controlled Aladdin and owned more than two-thirds of the outstanding bond principal.
- On June 1, 1948, Aladdin and the Jones family executed an agreement extending the bonds’ maturity date from September 1, 1948, to September 1, 1958, applying to the entire bond issue.
- Josephine Loeb Bloom, a minority bondholder (about $3,500 in principal), filed suit in federal district court against Aladdin and other defendants seeking to invalidate the modification as improper and unfair to minority bondholders.
- Bloom filed suit without first requesting that the trustee bring an action and without satisfying the deed of trust’s minimum-percentage demand requirement.
- The district court ruled for Bloom, concluding the modification was made for the benefit of Aladdin and the Jones family rather than for minority bondholders; it dismissed claims against defendants other than Aladdin but entered a money judgment against Aladdin.
- Aladdin appealed.

## Issues

1. Whether the maturity extension approved by holders of more than two-thirds in principal amount, under the modification provision, was valid and binding on all bondholders despite lack of separate notice to minority holders and allegations of insider self-interest.
2. Whether Bloom could maintain an individual (or representative) suit without first following the deed of trust’s trustee-first procedure and related preconditions for bondholder-initiated litigation (no-action clause).
3. Whether Bloom, as a later holder/assignee, was bound by her predecessors’ knowledge and acceptance of the extension.

## Decision

- The Eighth Circuit reversed the judgment for Bloom and remanded with directions to dismiss her complaint.
- The court held the extension was authorized by the bonds and deed of trust and was executed under the contractual supermajority mechanism.
- The court rejected the argument that separate notice to minority bondholders was required where the governing instruments did not impose a notice condition for a two-thirds-approved extension.
- The court concluded the “affect all bonds alike” condition was satisfied because the maturity extension applied uniformly to every bond in the issue, even if some holders’ outside interests differed.
- The court held Bloom could not sue directly because she did not invoke the trustee’s enforcement role or meet the deed of trust’s prerequisites for bondholder litigation.
- The court also relied on evidence that Bloom’s predecessors knew of and accepted the modified arrangement, which bound Bloom as successor to their rights.

## Legal Principles

- Bondholder rights and remedies are governed primarily by the terms of the bonds and the indenture/deed of trust; courts generally enforce those terms as written.
- When an indenture permits modification or extension upon consent of a stated supermajority, a properly approved extension is binding on all bondholders absent proof sufficient to invalidate the action (such as fraud).
- A requirement that a modification “affect all bonds alike” is satisfied when the change applies uniformly to the bonds as instruments; it does not require that every holder receive the same personal or economic advantage based on relationships outside the bonds.
- No-action clauses and trustee-centered enforcement provisions are generally enforceable; a bondholder who bypasses required demand and refusal steps may be barred from suing.
- A successor bondholder typically takes subject to prior holders’ ratification or acceptance of a modification made under the governing instruments.

## Conclusion

Aladdin Hotel Co. v. Bloom holds that a bond maturity extension approved under a two-thirds modification clause and applied uniformly to the issue is enforceable, and that a minority bondholder cannot bypass an indenture’s trustee-first, demand-based limits on litigation to challenge the modification, especially where predecessors accepted the changed terms.


Aladdin Hotel Co. v. Bloom, 200 F.2d 627 (1953)