Humphrey v. Bankers Mortg. Co. of Topeka (79 F.2d 345, 1935)

BRATTON, Circuit Judge.

The separate appeals in these cases present conflicting orders entered by the District Court of Kansas sitting in bankruptcy.

The Bankers Mortgage Company is a corporation organized under the laws of Kansas with its domicile at Topeka. It is authorized to issue and sell so-called savings bonds and other obligations and to •deal in mortgages and other securities. An action in equity for the appointment of a receiver was filed against it in the court below in 1933. The basis of the action was fraudulent conduct on the part of its officers. Frank L. Campbell, former clerk of the court, was appointed permanent receiver in July of that year and continued to conduct the business without interruption until the proceedings in bankruptcy which give rise to these appeals were instituted. The orders in the receivership proceedings were made and entered by Honorable Richard J. Hopkins, one of the judges of the court.

On October 22, 1934, Clyde C. Humphrey and four others filed in the court below a petition under sections 77A and 77B of the Bankruptcy Act (11 USCA §§ 206, 207). They alleged that they were creditors of the corporation having provable claims against it aggregating more than $1,000 in excess of the value of the securities held by them; that the corporation was insolvent and unable to meet its debts as they matured; that the petition was filed in good faith; and that the corporation should effect a reorganization. They set forth in addition the pendency of the receivership proceeding, the manner in which the receiver had conducted the business, and the resulting necessity for the reorganization. That proceeding was referred to Honorable John C. Pollock, the other judge of the court. All orders made in it were entered by him. A joint and several motion of the corporation and the receiver to dismiss the petition was submitted to the court on November 12, 1934, and an order overruling it was entered April 3, 1935. A motion to set the order aside was filed and denied. The corporation, the receiver, and two stockholders answered. Insolvency, inability of the debtor to meet its debts as they matured within the meaning of the statute, the good faith of the petition, and that petitioners had provable claims aggregating more than $1,» 000 above their securities, were expressly denied. The issues thus raised were heard on May 6th. Evidence was submitted, and at the conclusion of the hearing the court said, among other things: “From this on, so long as it is handled in this court, the court will handle the whole thing and won’t have anybody butting in. * * * Let me say, if when these plans are brought in, 1 am satisfied you convince me, it is for the best interests of the people who have thing's at stake here, I will approve it. If I am convinced it is not any good, I will liquidate it. * * * 1 think I will appoint Mr. Campbell to act on as receiver, and if some plan is presented here to dispose of this company better than running along under this receivership, 1 will appoint Mr. Campbell Trustee.” Counsel were then given permission to file briefs. Petitioners were allowi d ten days and the corporation, the receiver and the stockholders ten days thereafter for that purpose. Twelve days later, that is, on Saturday, May 18th, at between 10:30 and 11 o’clock in the forenoon, the court signed an order in chambers at Kansas City in which it was found that the debtor was unable to meet .its debts as they matured; that the petition was filed in good faith and complied with the act of Congress; that petitioners and others desired to effect a plan of reorganization; and that on account of an emergent condition existing by reason of asserted adverse claims and litigation begun and threatened, immediate action was necessary to protect and preserve the estate. The petition was approved, jurisdiction was reserved for the purpose of making all necessary subsequent orders, and the clerk was directed to give notice that a hearing would be held on the 21st to consider the matter of an appointment of a temporary trustee. The order was handed immediately to the secretary of the court, and soon afterwards — the time not being more definitely fixed — she mailed it to the clerk at Topeka, that being the seat of the court. The envelope was postmarked at Kansas City at 3 o’clock in the afternoon, and it was received by the clerk at 8:30 o’clock on Monday morning, "the 20th. It was the prevailing custom of the clerk to mark orders signed by the court at other places than Topeka filed as of the date on which they were signed, and in accordance with that custom the order was marked filed on the 18th. The court, on the 20th and without a hearing, appointed Campbell as trustee with direction to take charge of the business and conduct it subject to further order. The trustee duly qualified immediately.

Pursuant to a resolution of its board of directors adopted earlier in the day, the corporation on Saturday, the 18th, at 12 :15 o’clock in the afternoon, filed in the court below a voluntary petition in bankruptcy under the provisions of sections 77A and 77B. It was alleged therein that the corporation was not insolvent, but was unable to meet its debts as they matured; that it had been in receivership; that the creditors’ petition previously referred to had been filed and was then pending; that various claims and suits had been filed in the United States court in Mississippi ' involving sums in excess of $30,000; that the full amount of such claims with interest and attorneys’ fees was sought; that a hearing thereon had been set for the 25th of that month and that the court there had authorized others having similar claims to present them at that time; that the debtor believed many other similar claims would be filed, and that all of them would be allowed and judgments rendered thereon which would result in preferring those creditors over others. That petition was immediately presented to Judge Hopkins and all orders made in that case were entered by him. The court promptly entered an order approving the petition and appointing Campbell and Otis Allen as joint trustees.. Campbell declined to accept the appointment, and a subsequent order was entered later that day appointing Allen sole trustee with direction that he take charge of the property. The court entered another order on Monday morning at about 7:30 o’clock directing Campbell to surrender the property to Allen. A like order was entered at the same time in the receivership case. Allen and an officer went immediately to the residence of Campbell; a copy of each order was served and delivery of the property demanded. After some parley Campbell declined to deliver; instead, he filed a formal response in which he set forth his appointment as trustee in the involuntary proceeding and that he held the property by virtue of -it. • Answer was made to the response, and the petitioning creditors in the involuntary proceeding interposed a motion to dismiss the voluntary proceeding on the ground that by the approval of the petition in the former case, the court acquired and exercised exclusive jurisdiction of the debtor and its property, and that in consequence the later filing of the petition in the voluntary proceeding was without effect and conferred no jurisdiction upon the court. The court heard the entire matter. Testimony was submitted and the record in the involuntary proceeding was introduced. The court then made extended findings and conclusions. It was found, among other things, that the petitioning creditors in the involuntary proceeding did not have claims against the corporation in excess of the securities held by them, and that the commencement of that action was not for the best interests- of the creditors and stockholders. It was concluded that the court was without jurisdiction to enter the orders in that case approving'the petition and appointing a trustee which would bind the corporation; that such orders were void; that those approving the voluntary petition and appointing Allen trustee were valid. The motion to dismiss was overruled, and Campbell was directed anew to surrender the property.

Appeals were allowed by the District Court. That in the first case here was from the respective orders made in the voluntary proceeding appointing Allen as trustee, directing Campbell to surrender the property, and overruling the motion to dismiss; that in the second case here was from the orders made in the involuntary proceeding denying the motion to set aside the order overruling the mo-' tion to dismiss the petition, approving the petition, and appointing Campbell as trustee.

The record proffers a preliminary question respecting the right of appeal from orders made in a proceeding of this kind. The parlies do not present it, but it is jurisdictional and has engaged our attention. Section 77B of the Bankruptcy Act was added by the amendment of June 7, 1934 (section 1 [11 USCA § 207]), and its constitutional validity as a part of the law on the subject of bankruptcy is not open to doubt. Continental Illinois Nat. Bank & Trust Co. v. Chicago, R. I. & P. Ry. Co., 294 U. S. 648, 55 S. Ct. 595, 79 L. Ed. 1110; Campbell v. Alleghany Corporation (C. C. A.) 75 F.(2d) 947; Grand Boulevard Inv. Co. v. Strauss (C. C. A. 8) 78 F.(2d) 180, decided July 15, 1935. That section contains no provision expressly authorizing an appeal except in one instance. It is provided in paragraph (c) (9), of the section that independently of others an appeal may be taken to the Circuit Court of Appeals from an order fixing an allowance. Otherwise the statute fails to authorize in express terms that an appeal may be taken from action had under its provisions. Bui it does provide:

“ * * * If the petition or answer is so approved, an order of adjudication in bankruptcy shall not be entered and the court in which such order approving the petition or answer is entered shall, during the pendency of the proceedings under this section, have exclusive jurisdiction of the debtor and its property wherever located for the purposes of this section, and shall have and may exercise all the powers, not inconsistent with this section, which a Federal court would have had it appointed a receiver in equity of the property of the debtor by reason of its inability to pay its debts as they mature.” Paragraph (a).

“All other provisions of this title, except such as are inconsistent with the provisions of this section, shall apply to proceedings instituted under this section, whether or not an order to liquidate the estate has been entered. For the purposes of such application, provisions relating to ‘bankrupts’ shall be deemed to relate also to ‘debtors’; ‘bankruptcy proceedings’ or ‘proceedings in bankruptcy’ shall be deemed to include proceedings under this section; the date of the order approving the petition or answer under this section shall be taken to be the date of adjudication, and such order shall have the same consequences and effect as an order of adjudication.” Paragraph (k).

“In proceedings under this section and consistent with the provisions thereof, the jurisdiction and powers of the court, the duties of the debtor and the rights and liabilities of creditors, and of all persons with respect to the debtor and its property, shall be the same as if a voluntary petition for adjudication had been filed and a decree of adjudication had been entered on the day when the debtor’s petition or answer was approved.” Paragraph (