Citations
- 20 F.2d 425
Full opinion text
COOPER, District Judge.
This is a petition by a creditor, Thomson Douglas, who is also one of the officers of the bankrupt, to review the orders of the referee in bankruptcy, one dated March 7, 1927, and one dated March 30, 1927, denying his motion to vacate and set aside the sale of the real property of the bankrupt, made February 3, 1927, and the order confirming such sale.
The petitioner, Douglas, is a creditor with proved claims of about $70,000, out of a total of proved claims amounting to about $125,000. Holders of a majority in amount of the remaining claims are nonresidents of Plattsburg, the city in which the property is located. There are also local priority claimants for a few hundred dollars.
The bankrupt corporation filed a voluntary petition on December 20, 1926, and a trustee was elected on January 6, 1927. On January 16th the trustee petitioned the referee in bankruptcy for a sale at public auction of “all real and personal property of the bankrupt at such lots as will accommodate the greatest number of bidders or prospective purchasers, and it is desirable that such sale be had at the earliest date possible that it can -be lawfully held.”
Whereupon a notice was made and signed by the referee, and published once, viz. January 21, 1927, in one of the official papers in Clinton eounty, and a copy of the notice, together with a letter, signed by the trustee, giving information about the estate of the bankrupt, but not stating the value fixed by the appraisers, was mailed to each creditor. The published notice is in full as follows:
“In the District Court of the United States for the Northern District of New York.
“In the Matter of Lake Champlain Pulp and Paper Corporation, Bankrupt. No. 12937.
“To the Creditors of the Lake Champlain Pulp & Paper Corporation and the Holders of Claims Against and Liens on Its Property:
“Notice is hereby given that on the 3d day of February, 1927, at 1:30 p. m., there will be a meeting of the creditors and parties in interest of the above-named bankrupt, at the office of Thomas B. Cotter, Esq., attorney for the trustee, 38 Clinton street, in the city of Plattsburg, in said district, to:
“1. Consider the petition of the trustee, praying for a sale of all the real and personal property of the bankrupt at public auction to the highest bidder, and, if such sale is directed, then to attend such sale to be held in said city later on the same day.
“2. Determine whether the real estate shall be sold in parcels, or as a whole, whether it shall be sold free and clear of all incumbrances, or subject to vendor’s lien’of $65,000 and interest from August 1, '1926, and accrued but undetermined taxes.
“3. Consider and act on the claims made by certain vendors for the return of property sold and delivered by them to the bankrupt just prior to the adjudication.
“4. Declare a dividend from the avails of the sale of the bankrupt property, if the amount received will justify the same.
“5. Attend an application that will be made after the sale, if held to confirm the same, and
“6. To transact any and all other business that may properly come before that meeting.
“Dated Malone, N. Y., January 20, 1927.
“William P. Badger,
Referee in Bankruptcy.
“Thomas B. Cotter, Attorney for Trustee,
“38 Clinton Street, Plattsburg, N. Y.”
The bankrupt’s real estate, according to the trustee’s petition for the sale, consisted of—
“A large plot of ground on the north side of Bridge street, south of the main line of the Delaware & Hudson Railway in the city of Plattsburg, on which is located two railway spur tracks leading to the property; the paper mill, in which is located two 72-inch tissue paper machines; an office building located between the paper mill and the street; a three-story brick building, located some distance from the paper plant at the extreme westerly edge of the plot, and other old and unused buildings. The greater portion of the vacant land on said plot and the brick building leased by a wholesale clothing jobber, as well as the shed rented for storage, is located westerly of Green street, which runs northerly and southerly from Bridge street to the right of way of the Delaware & Hudson Railroad.
“Another portion of the bankrupt’s real estate, which consists of a hydraulic power plant, is located on the north side of Bridge street east and adjoining the Saranac river, and which is entitled to the entire flow of the Saranac river at that point. There is located on this property a one-story stone power house, in which is installed an electric generating station, and this power plant is connected with the paper mill by an underground flume, and, as your petitioner is informed and believes, the power plant can be best used, and has its greatest value if used, in connection with the portion of the bankrupt’s property lying on the north side of Bridge street.”
This property was bought by or for the bankrupt in 1921 for $100,000, of which $35,000 has been paid, leaving a balance due of $65,000. There has been no default in the performance of the contract of purchase. After such purchase, various replacements of old machinery and purchase or installation of new machinery was made.
On September 16 and 17,1925, an inspection and valuation of this property was made by Messrs. Allen, Ferguson, and Murphy. In tbeir report appears the following:
“The property is situated in Plattsburg, N. Y., a town of 10,000 population, and comprises three separate parcels, located' at the north of and along the Saranac river, as follows :
“(a) Hydroelectric development at the first bay on the river and just north of Bridge street, supplying sufficient electric power for the requirements of the paper mill.
“(b) An undeveloped water power site, approximately one mile up the river from the mill, known as the ‘South Catherine street property,’ and capable of development to supply sufficient power to manufacture from, 2,500 to 3,000 tons of ground wood pulp per year.
“(e) Paper mill on the north side of Bridge street, east of the river, capable of manufacturing 15 tons per 24 hours of toilet, toweling, napkin papers and tissue* in jumbo rolls only, and with hydraulic power facilities for manufacturing its own ground wood pulp.”
Valuation of Properties (Improvement Completed).
Hydroelectric station and hydraulic power facilities supplying ground wood pulp and power requirements of paper mill.................... $160,000
Paper Mill:
Two 76-inch cylinder paper machines, 15 tons’ capacity per 24 hours,
’ * * 800,000
Ground Wood ,Pulp Mill:
8 tons’ capacity per 24 honrs._
Real estate........................ 5,000
South Catherine street water power site (undeveloped) capable of producing no less than 2,500 tons of ground wood pulp per year.............. 35,000
Total valuation $500,000
The referee appointed appraisers, consisting of the secretary of the bankrupt, an officer of another paper company in Plattsburg, and a wholesale dealer of plumbing supplies, whft on January 15,1927, appraised the real estate of the bankrupt at $75,000, but the petitioner protested to the appraisers that such appraisal was too low.
At the meeting hold February 3, 1927, at 1:30 p. m., in response to tbe above notice, and in accordance with the same, the creditors voted for an immediate sale at public auction. It was decided that the property was to be sold free and clear of all incumbrances. The sale was held immediately after the creditors’ meeting and at the same place. There could be, of course, no publication or service of any notice of sale, nor other or further notice to any persons. The entire bankrupt’s real estate was struck down to one II. M. Nelson for $66,500, subject to accrued taxes.
Apparently the only persons present at the sale, besides the purchaser, who lived in New York City, and who had been especially invited to attend the meeting and proposed sale, were the referee, the trustee and his attorney, Johnson the conditional contract vendor who had a lien of $65,000 against the property, the petitioner, a,n officer of another paper mill, who had a large claim against the bankrupt, various attorneys, several of whom presented claims which were allowed at the meeting, and one O’Brien, a banker of Plattsburg.
After the bidding reached $66,500, the only bidders were Johnson, the conditional contract vendor, and Nelson, the successful bidder. Certain articles of personal property were sold for about $1,300 to O’Brien. O’Brien was not a bidder on tbe real estate. Nelson and O’Brien agreed before the sale that Nelson should bid in the property and take the water power for two-thirds of the purchase price, and that O’Brien should take the remainder of the property for the other one-third.
The meeting of the creditors of the bankrupt had been adjourned until after the sale, for the purpose of confirming the sale and upon reconvening, the trustee reported the sale of the bankrupt real estate to Nelson fo'r $76,000, and, there being no objection to the confirmation of the sale, an order was made by the referee confirming the sale. The purchase price has since been paid in full, two-thirds by the purchaser’s undisclosed principal, the International Paper Company, and the remainder by O’Brien, who has died since the sale, and who, there is some reason to believe, was acting for the Delaware & Hudson Company, whose president had previously conferred with petitioner concerning certain changes in its roadbed, for the carrying out of which a portion of th