In re Anjopa Paper & Board Manufacturing Co., 93218.

• Decision Date: 06 April 1967
• Docket Number: No. 93218.,93218.
• Citation: 269 F. Supp. 241
• Parties: In the Matter of ANJOPA PAPER & BOARD MANUFACTURING CO., Inc., Bankrupt.
• Court: U.S. District Court — Southern District of New York

269 F. Supp. 241

In the Matter of ANJOPA PAPER & BOARD MANUFACTURING CO., Inc., Bankrupt.

No. 93218.

United States District Court S. D. New York.

April 6, 1967.

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Krause, Hirsch, Gross & Heilpern, New York City, for the Trustee in Bankruptcy. George J. Hirsch, New York City, of counsel.

Goldstein, Judd & Gurfein, New York City, for F.D.I.C. as Receiver of the Home National Bank of Ellenville. Orrin G. Judd, Earle K. Moore, Thomas R. Asher, New York City, of counsel.

Leslie H. Fisher, Asst. Gen. Counsel, Washington, D. C.

OPINION

COOPER, District Judge.

This petition of the Federal Deposit Insurance Corporation (hereinafter F.D. I.C.) seeks review of an order dated November 6, 1964 of the Referee in Bankruptcy, R. Lewis Townsend, setting aside certain preferential transfers made to it by the bankrupt Anjopa Paper & Board Manufacturing Company, Inc. (hereinafter Anjopa).

SUMMARY OF FACTS

A review of a rather extensive and somewhat concentrated record before us reveals that Anjopa was engaged in the manufacture of paper products and owned a plant in Ellenville, New York. From June 1951, when the company started operations with its president, Joseph Di Candia, through November 1956 Anjopa obtained substantial amounts of capital from the Home National Bank of Ellenville (hereinafter the Bank). On November 30, 1956, national bank examiners discovered evidence of gross irregularities in the Bank's affairs and a substantial shortage. That same day, the president of the Bank, William R. Rose, confessed to agents of the Federal Bureau of Investigation that the Anjopa loans had not been authorized by the Directors of the Bank, and that they were secretly obtained by Di Candia through the falsification of Bank records by Rose whereby Anjopa's account was overstated, thus permitting the company to draw against a non-existent balance. A subsequent audit revealed that there was a shortage in excess of $1,000,000 almost all of it representing advances to Anjopa. The Bank was closed on December 3, 1956. The next day F.D.I.C. was appointed Receiver of the Bank by order of the Comptroller of the Currency acting under the authority of Title 12 of the United States Code, Section 1821(c).¹

F.D.I.C., as receiver for the creditor bank, attempted to recoup Anjopa's indebtedness. It held conferences with Di Candia and his accountant to determine, among other things, Anjopa's business prospects, its then financial condition, and the alternative methods by which F.D.I.C. could protect the Bank's advances. On December 20, 1956, real and chattel mortgages with an underlying note for $800,000 were executed by Di Candia and delivered to F.D.I.C.; recording thereof took place the next day. The plant continued to operate under Di Candia's direction until it was closed in December 1957.

In March 1957 F.D.I.C. obtained an appraisal of the plant. Trustee's Ex. 12. This indicated that the plant was worth some $300,000 as a going concern, a figure much less than expected. By letter dated March 25, 1957 F.D.I.C. called a meeting of Anjopa's creditors for April 2, 1957 when it advised them for the first time of the existence of the December 20, 1956 mortgages. The letter also stated (Trustee's Ex. 23):

On the basis of the financial statements given to the Receiver by `Anjopa', the appraisal of its assets that has been made by the Receiver, and a resume of its operational statements since the closing of the bank, it is evident that `Anjopa' cannot be expected to liquidate its heavy indebtedness within a reasonable time.

At the meeting and in face of creditor opposition, F.D.I.C. confirmed its intention to keep its mortgages. The creditors present took the position that the mortgages might be preferential transfers under Section 60 of the Bankruptcy Act. F.D.I.C., on the other hand, justified its lien on the plant and machinery pointing out that Bank funds had been used in Anjopa's capital expansion, and that they had cancelled checks to prove it.

Although the period in which creditors could have attacked the mortgages under Section 60 had elapsed on April 20th, after further talks with the creditors, F.D.I.C. in July, 1957 entered into a compromise agreement with Anjopa. In consideration of waiver by the creditors of any rights to challenge the validity of the mortgages it held, F.D.I.C. agreed to compromise its claim of over $1,000,000 in exchange for $100,000 in third-party notes (representing some of Anjopa's accounts receivable) and $200,000 in four semi-annual payments of $50,000 beginning one year thereafter. Pursuant to 12 U.S.C. § 192 the necessary judicial approval of such an agreement by a court having jurisdiction in the local community, viz., the New York Supreme Court, was obtained.²

On December 10, 1957 Di Candia was sentenced by a Judge of this Court to three years for misappropriation of national bank funds. The plant closed three days thereafter.

On March 21, 1958 an involuntary petition in bankruptcy was filed against Anjopa; it was adjudicated a bankrupt on April 8, 1958, all further proceedings being referred to the Honorable Normington Schofield, Referee in Bankruptcy. Anjopa defaulted under the above compromise agreement by failing to meet the first payment of $50,000 due in July 1958. Accordingly, F.D.I.C.'s mortgages were never cancelled, nor was the debt (less collections of $95,201 on the notes) compromised.

By order dated June 19, 1958 the Referee granted F.D.I.C. permission to foreclose its mortgages. At the foreclosure sale on March 2, 1959 and after some bidding, F.D.I.C. purchased the plant and real property for $80,000 which sum was applied as a reduction of the total indebtedness of the bankrupt to F.D.I.C. After fees, allowances, and other expenses the net reduction amounted to $38,533.21. The property was resold to American Paper and Board Manufacturing Company, Inc. (hereinafter American Paper) on August 19, 1959. F.D.I.C. received a down payment of $25,000 and a purchase money mortgage of $200,000, installments to be paid over a period of eight years at 4% interest. In addition, American Paper assumed a prior mortgage of $13,700. After making some payments toward the $200,000 mortgage, American Paper defaulted.

A second foreclosure sale was held in November 1961, and F.D.I.C. again bid on the property. On May 15, 1962 it entered into an agreement to sell the property to Channel Master Corporation for $68,200.

THE TRUSTEE'S PETITION

The instant proceedings were initiated by the trustee in bankruptcy by notice of motion dated March 6, 1959. In substance, the trustee's petition alleged that Anjopa's transfers to F.D.I.C. of property (the December 20 mortgages) and cash (the third-party notes upon which $95,201 was realized) were in violation of Section 15 of the New York Stock Corporation Law, McKinney's Consol.Laws, c. 59, because they were made: (1) at a time when the bankrupt was insolvent, or its insolvency was imminent; (2) with intent to prefer F.D.I.C. over other creditors, and (3) with F.D.I.C.'s knowledge (or reasonable cause to believe) of the insolvency and intent to prefer. The petition sought an order disallowing the bankruptcy claim filed by F.D.I.C. as a general creditor and an affirmative judgment setting aside the transfers made by Anjopa, and requiring F.D.I.C. to surrender them or their proceeds to the trustee.

Numerous hearings thereon were held before Referee Schofield. By memorandum decision dated April 14, 1962 the Referee found that F.D.I.C. had violated Section 15, and the trustee's motion was granted. However, the Referee did not set aside the transfers, since F.D.I.C. had already sold the mortgaged property to American Paper and collected on the notes. Instead, he held that the order to be entered pursuant to his decision should (page 8):

"provide for the payment to the Trustee of the purchase price that F.D.I.C. received in the sum of $238,700.00 less any expenditures or credits to which it may be entitled * * * to be agreed upon by the parties or determined by a future hearing * * * plus the payment by F.D.I.C. to the Trustee * * * which it received for the notes."

The parties not being able to agree on the credits, a hearing was held on June 21, 1962. On that day F.D.I.C. also sought to re-open the hearings with regard to the trustee's petition, especially with respect to the Referee's ruling that F.D.I.C. pay the trustee $238,700 (less expenses), an amount much in excess of what was actually received for the property from American Paper. Referee Schofield reserved decision. Further, F.D.I.C. sought an order approving the then pending sale of the property to Channel Master Corporation; this motion was denied in a decision rendered the next day, although no order was entered thereon. Referee Schofield died on June 1, 1963.

Referee R. Lewis Townsend was appointed to succeed Referee Schofield by order dated July 1, 1963. As of that date, no findings of fact or conclusions of law had been entered upon the April 14, 1962 memorandum decision, nor had any decision been rendered with respect of the motion for the credits to be allowed, and the motion to re-open.

By stipulation filed January 6, 1964, consented to by the United States Attorney, the trustee and F.D.I.C. agreed that:

(1) All motions, hearings, proceedings, and pleadings had herein and the entire record thereof, including the testimony taken and evidence introduced in connection therewith, had before Referee Schofield shall be deemed as though taken, submitted to, and heard by Hon. R. Lewis Townsend * * * except as to * * * the motion for approval of the sale to Channel Master.

(2) * * *

(3) Referee Townsend * * * shall have in all respects the power and duty to determine all motions and issues of fact and law in the within proceeding * * * as though taken, submitted to and

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