In re Charles Knosher & Co.

• Decision Date: 03 June 1912
• Docket Number: 2,050.
• Citation: 197 F. 136
• Parties: In re CHARLES KNOSHER & CO. v. BAXTER et al. WESTERN DRY GOODS CO. et al.
• Court: U.S. Court of Appeals — Ninth Circuit

197 F. 136

In re CHARLES KNOSHER & CO.

WESTERN DRY GOODS CO. et al. v. BAXTER et al.

No. 2,050.

United States Court of Appeals, Ninth Circuit.

June 3, 1912

On the 27th day of February, 1911, Charles Knosher & Co., a corporation engaged in general merchandise and department store business in the city of Seattle, Wash., was adjudged bankrupt in an involuntary proceeding brought for that purpose in the District Court of the United States for the Western District of Washington, the adjudication being had upon a petition alleging bankruptcy, and an answer admitting the same. Thereupon, and on the same day, Sutcliffe Baxter upon the choice of the creditors, was appointed receiver by the court, and qualified and took possession of the property of the bankrupt. On March 20th he was elected trustee by the creditors, and continued to act as such.

On the 27th of February, when the receiver took possession of the estate of the bankrupt, consisting of goods, wares, and merchandise held for sale, there was a clearance sale going on. He allowed this sale to go on until the close of business on that day, then closed the store, and at once began to take an inventory. The inventory was begun on February 27th, and completed March 6th. In taking this inventory the receiver found that the merchandise was marked only with the retail selling price there being nothing to show the original cost price; that in fixing the price no specific percentage had been added to cost, the merchandise being offered for sale at a profit ranging from 25 to 100 per cent., so that it was not practicable to ascertain original cost by deducting a certain definite percentage to be regarded as profit from the marked selling price of the goods.

After the filing of the inventory and on March 9, 1911, the referee in bankruptcy appointed three appraisers, who made a formal but not an actual appraisement of the property shown in the inventory, and filed their report of the appraisement on the same day in the office of the referee of bankruptcy. The value of the stock was returned by the appraisers at $42,214.87. Thereafter the referee made an order of sale, and the sale was set for March 13th upon sealed bids. Among the bids received was one for $50,027. The receiver adjudged the bids insufficient, and they were rejected, and new bids were called for and opened on the 15th. Among these bids was that of the respondent in this case, John Anisfield Company, whose bid was $57,000, which was received and accepted, and the stock of merchandise was sold to him in bulk on March 16 1911.

On April 20, 1911, the Western Dry Goods Company and other creditors of the bankrupt filed their petition, and on April 26, 1911, their amended petition with the referee reciting the proceedings that had been had in the case, and alleging that the employes of the bankrupt had fraudulently conspired with John Anisfield Company for the purpose of deceiving the officers of the court, and had made up an inventory of the stock of goods, wares, and merchandise belonging to the bankrupt, which were sold for an amount greatly less than the fair market wholesale value of said stock, and greatly less than the actual market value thereof; that, in pursuance of the conspiracy, the employes of the bankrupt advised the John Anisfield Company of the actual value of the stock, but concealed the information from all others; that the receiver and trustee accepted the said false and fraudulent inventory as true, and, upon the assumption that said inventory did represent the true value of said stock, the said appraisers did return their appraisement into court; that John Anisfield Company had taken possession of said estate, and since the date thereof had been selling the same at special bankrupt sale, and, as petitioners were informed and believed, had realized the sum of $50,000, and was threatening to sell the remainder of the stock to an innocent purchaser, and remove the same from the jurisdiction of the court.

The prayer of the petition was that the appraisement, order of sale, and confirmation of sale be set aside, and that the John Anisfield Company be required to pay into the registry of the court the money theretofore received by them out of the estate of the bankrupt, and that the stock remaining on hand and unsold be returned to the possession of the receiver. The petition also prayed for an injunction commanding the said John Anisfield Company, their agents and representatives, from selling, removing, disposing of, or in any way interfering with the remainder of said stock of the bankrupt then in their hands and under their control. The petition was supported by the affidavits of Eugene G Anderson, the president and treasurer of the Western Dry Goods Company, and Ole A. Kjos, one of the appraisers appointed by the referee in bankruptcy Both affidavits refer to conversations with two employes of the bankrupt, Henderson and Barr, in which it was stated by them that the inventory was reduced in the value and quantity of the stock and the information as to such reduction in value and quantity conveyed to John Anisfield Company, so that they might purchase the stock at a grossly inadequate value, and thereby realize enough to pay their own claim in full and return the balance to the bankrupt.

To this petition John Anisfield Company interposed the objection that the court had no jurisdiction to entertain the petition because of the facts appearing of record in the case showing the proceedings therein. This petition came on to be heard before the referee in bankruptcy, together with objections made thereto. The objections were sustained, and the prayer of the petition denied and the petition dismissed.

A petition for review was taken to the District Court upon the return of the referee showing that the objection to jurisdiction had been sustained by the referee for two reasons: First. That there was no allegation in the original or amended petition of any improper conduct on the part of the trustee of the estate, or of his attorneys. Second. That it was not alleged that there had been any demand made upon said trustee or his attorneys by the petitioning creditors that said trustee should proceed against the said John Anisfield Company to obtain the relief sought by said petitions, or any other relief, in the interests of all the creditors. Without passing upon the question of jurisdiction, the District Court proceeded to consider the petition upon its merits upon a hearing upon affidavits, and upon such hearing the court denied the petition.

On March 20th, the receiver having filed a report of his proceedings, an order was entered approving his report, and making an allowance to the receiver of $2,500 with a like sum of $2,500 to his attorneys. It later appearing that this allowance to the receiver and his attorneys had been made without notice to the creditors, an order was made requiring the receiver to make application for his allowance and give notice of such application, which was done. On July 10, 1911, the matter was submitted to the court for its determination, and as a basis for this determination it was stipulated by the parties to the proceedings that the total amount of cash actually disbursed by Baxter as receiver was $61,312.87, and the total amount of cash received by him as trustee, and then being disbursed was $54,496, and that said cash amounts were the sums to be considered by the court in determining the matter of the compensation of the receiver and trustee, and the attorneys of the receiver and trustee. Thereafter, on September 23, 1911, the court determined that Baxter as receiver had conducted the business of the bankrupt, and was entitled to compensation as receiver on the sum of $61,312.87 for the performance of his ordinary duties as such receiver at the rate prescribed in section 48d of the Bankruptcy Act, and that he was entitled to extra compensation at the same rate under section 48e on said sum, $61,312.87, for conducting the business of the bankrupt as receiver, and that Baxter was entitled to compensation on said sum of $54,496 for his services as trustee of said estate up to the date of the final submission of the matter at the rate prescribed in section 48a of the Bankruptcy Act, and that the attorneys of the receiver and trustee were entitled to an equal amount for their services up to the date of the submission of the matter to the court.

Thereupon the court made an order allowing the receiver and trustee $2,201.20, and allowing a like sum of $2,201.20 to the attorneys for such receiver and trustee in full of all services rendered up to the date of the final submission of the matter to the court.

The questions involved in these proceedings are brought here by petition for review under section 24b of the Bankruptcy Act.

Nelson R. Anderson and Hughes, McMicken, Dovell & Ramsey, all of Seattle, Wash., for petitioners.

Harold Preston and O. B. Thorgrimson, both of Seattle, Wash., for respondent John Anisfield...