Sylvan Beach v. Koch

Decision Date25 February 1944
Docket NumberNo. 12577-12580.,12577-12580.
Citation140 F.2d 852
CourtU.S. Court of Appeals — Eighth Circuit
PartiesSYLVAN BEACH, Inc., v. KOCH et al. PETERS et al. v. SAME. PETERSEN v. SAME. PEVELY DAIRY CO. v. SAME.

COPYRIGHT MATERIAL OMITTED

Harry S. Gleick, of St. Louis, Mo. (Gleick & Strauss, of St. Louis, Mo., on the brief), for appellant Sylvan Beach, Inc., in No. 12577, and for appellants L. W. Peters, Ralph L. Peters, A. H. Peters, C. Lew Gallant and William Faisst, in No. 12578.

Charles D. Long, of St. Louis, Mo. (Frederick A. Judell and Rassieur, Long & Yawitz, all of St. Louis, Mo., on the brief), for appellant A. L. Petersen, in No. 12579.

William H. Allen, of St. Louis, Mo., for appellant Pevely Dairy Company, in No. 12580.

George O. Durham, of St. Louis, Mo. (Douglas H. Jones and Barak T. Mattingly, both of St. Louis, Mo., on the brief), for appellees Kenneth Koch and Richard Dalton, trustees.

Douglas H. Jones, of St. Louis, Mo. (Barak T. Mattingly, of St. Louis, Mo., on the brief), for appellees Frank S. Wiemeyer and Ethel L. Wiemeyer.

Before SANBORN and WOODROUGH, Circuit Judges, and HULEN, District Judge.

SANBORN, Circuit Judge.

These appeals challenge the "findings, conclusions and judgment" of the District Court entered December 5, 1942, in a proceeding for the reorganization of Sylvan Beach, Inc., under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. The "judgment" actually consists of several judgments determinative of distinct controversies thought by the District Court to be germane to the reorganization proceeding.

Broadly stated, the principal questions presented are: (1) Whether, after dismissing the proceeding, the court had power to adjudge that the debtor, Sylvan Beach, Inc., was a partnership and to enter money judgments against the persons found by the court to be partners and in favor of persons to whom they were found to be indebted; (2) whether the court, after having authorized the temporary trustee of the debtor to borrow money on certificates of indebtedness, could dispose of all of the assets of the insolvent estate without notice to a certificate holder and without making any provision for the payment of the unpaid certificates out of the estate; and (3) whether the court, in dismissing the proceeding, was required to conform to the provisions of § 236(2) of the Bankruptcy Act, 11 U.S.C.A. § 636(2), which, in effect, require that if no plan of reorganization is approved or accepted, the judge shall, after hearing all persons in interest, adjudge the debtor a bankrupt or dismiss the proceeding as he may decide is in the interests of creditors and stockholders.

While the attacks upon the "judgment" raise mainly questions relating to jurisdiction and to due process, we find it impossible to avoid a somewhat detailed statement of the facts.

Sylvan Beach, Inc., the debtor, was incorporated under the laws of Missouri in April, 1932, for the purpose of leasing a tract of land consisting of about 32 acres on the Meramec River near St. Louis, Missouri, and of operating an amusement park thereon.1

On April 26, 1932, the debtor leased the land from Frank S. Wiemeyer and Ethel L. Wiemeyer, his wife, for the term of ninety-nine years, at an annual net rental of $5,000, payable in equal quarterly instalments. The lease provided that, in case of a default in the payment of rent or in other conditions of the lease, it might, upon notice, be declared forfeited. A restaurant, swimming pool and bath house were built upon the land, and other improvements were made. The park was opened for business about July 4, 1932. The debtor had little, if any, cash or credit, and Louis W. Peters, its promoter and president, was in substantially the same situation. The venture was not profitable, and rents due under the lease were frequently in default, and creditors accumulated. In the fall of 1934, the Wiemeyers brought a suit to cancel the lease, but before it came to trial, the debtor, on March 14, 1935, filed a petition for reorganization under Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207. This proceeding was dismissed on June 6, 1935, by agreement between the debtor and most of its creditors. This agreement resulted from an arrangement made by the debtor with the Farmers and Merchants Bank of Fenton, Missouri, and with Kenneth Koch, a director of the bank, and Richard Dalton, its cashier. The bank loaned the debtor $7,000 to enable it to pay $5,900 delinquent rent to the Wiemeyers and to meet other obligations, the payment of which could not be postponed. The debtor gave to the bank and all other creditors notes payable on or before October 15, 1938. To secure the payment of these notes and to provide management for the business of the debtor satisfactory to the bank and the other creditors, the debtor on May 31, 1935, executed a deed of trust conveying all its property to Koch and Dalton, as trustees, with the right to take possession of and to operate the business until October 15, 1938 unless the notes and obligations secured by the deed of trust should be paid before that time either by the debtor or out of the proceeds of the business. The deed of trust provided that if all the secured obligations were not paid by October 15, 1938, the trustees might foreclose. Profits from the business, if any, were to be applied by the trustees first upon the note to the bank, and, when that was paid, upon the other notes.

Koch and Dalton, as trustees, took over the property and business of the debtor in accordance with the terms of the deed of trust, and conducted the business until July 30, 1938. While they were in possession they paid the rent, taxes and all of the expenses of the business promptly, and by July 30, 1938, had, out of the profits of the business, applied $4,000 upon the debtor's note to the bank. Nothing had been paid upon the notes to other creditors. The trustees employed Louis W. Peters as manager of the business until the spring of 1937, when they discharged him and procured another manager. Peters and his son Ralph were operating the restaurant upon the premises, which restaurant they owned or claimed to own and which they continued to operate during the time the trustees were in possession and control of the business of the debtor.

On July 30, 1938, the debtor filed a petition for reorganization under Section 77B of the Bankruptcy Act.2 In the petition, which was verified by Louis W. Peters, the debtor's president, it was stated that the debtor was engaged in the public amusement business; that it had assets, consisting of the leasehold and the improvements thereon, of the approximate value of $50,000; that the debtor was indebted in the amount of about $28,000 and that sublessees had erected improvements upon the leasehold of the reasonable value of $25,000; that the debtor had been handicapped by lack of working capital; that about $13,000 of its indebtedness was secured by a deed of trust to Koch and Dalton, as trustees; that they were threatening foreclosure and were applying the income of the debtor "to the balance due the said Farmers-Merchants Bank of Fenton, of which they are officers, without protecting the requirements of the aforesaid leasehold under which the debtor company is holding the aforesaid property and to the danger and irreparable injury and loss of the total investment of said debtor company."

The petition for reorganization was, on July 30, 1938, approved by the court as properly filed, and Louis W. Peters was appointed temporary trustee, with power to operate the business. The order appointing Peters required Koch and Dalton, trustees under the deed of trust, to deliver to him as temporary trustee the property of the debtor, together with the books of account, securities, moneys, etc. The order enjoined Koch and Dalton from interfering with the operation of the debtor's estate by Peters as temporary trustee. The order directed the temporary trustee to notify creditors and stockholders of a hearing to be held on August 30, 1938, to determine whether the appointment of the temporary trustee should be made permanent or terminated.

The record does not disclose what, if anything, took place at the hearing on August 30, 1938, but Peters continued to act as temporary trustee. On September 30, 1938, the court authorized him to pay $1250 rent due October 1, 1938, out of $1,988.84 which he represented that he had on hand. On January 16, 1939, he was authorized to issue certificates of indebtedness to borrow $1500 to pay rent and taxes. On March 24, 1939, the Wiemeyers moved the court for possession of their property because of a default in the payment of rent due January 1, 1939. On October 23, 1939, Peters was authorized to issue certificates of indebtedness in order to borrow $2500 to pay rent and taxes. On April 24, 1940, Peters was authorized to issue certificates in order to borrow $600 for repairs. On November 4, 1940, Peters procured authority to borrow $3,000 to pay rent and taxes. On May 14, 1941, he obtained authority to borrow $600 to pay out "a concessionaire" and for other purposes.3

On March 29, 1940, Koch and Dalton, trustees, filed a motion to dismiss the reorganization proceeding on the ground that the court lacked jurisdiction. They stated in their motion the facts relative to the deed of trust of May 31, 1935, and the circumstances under which it was given, and alleged that they were in possession of the debtor's property and business on July 30, 1938, at the time the debtor filed its petition for reorganization. Their motion showed that at that time the debtor had neither the possession nor right to possession of any of the property covered by the deed of trust, and that the debtor had not been engaged in any business since March, 1935. Koch and Dalton, trustees, submitted their motion upon the pleadings. On August 5, 1940, the District Court denied the motion and also denied a pending petition of Frank S. Wiemeyer and...

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