360 F.2d 753 (5th Cir. 1966), 22321, Kyle v. Stewart

Docket Nº:22321.
Citation:360 F.2d 753
Party Name:K. D. KYLE, Appellant, v. Ernest L. STEWART, Trustee of P & M Manufacturing Co., Inc., Appellee.
Case Date:May 17, 1966
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 753

360 F.2d 753 (5th Cir. 1966)

K. D. KYLE, Appellant,


Ernest L. STEWART, Trustee of P & M Manufacturing Co., Inc., Appellee.

No. 22321.

United States Court of Appeals, Fifth Circuit.

May 17, 1966

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[Copyrighted Material Omitted]

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John P. Corcoran, Jr., William E. Henson, Jr., Tampa, Fla., for appellant.

John R. Trinkle, Jr., Tampa, Fla., Allen, Dell, Frank & Trinkle, Tampa, Fla., of counsel, for appellee.

Before PHILLIPS, [*] JONES and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

This case presents again the frequent problem of summary jurisdiction versus a plenary suit in a Trustee's efforts to recover property (or proceeds) of the Bankrupt Estate. Kyle, the Respondent-Appellant, was a principal stockholder, the executive vice-president, and a director of the corporate Bankrupt and received the properties in question as a result of a prebankruptcy liquidation agreement executed by all of the three stockholders. The Referee, affirmed by the District Court on petition to review, upheld summary jurisdiction. We agree and affirm.

Although the Appellant cannot submerge the desire to digress into facts and a half dozen other claimed errors, ours is a single question, and accordingly the facts, neither complex nor conflicting, may be severely compressed.

The stockholder-directors of P & M 1 the corporate Bankrupt, were Kyle, the Appellant, owning 25% With Mills and Black owning the remaining 75%. Mills and Black were also the owners of Southern Gas, 2 although the relevance of that fact to this appeal is difficult to discern.

Whether on February 18, 1962, P & M was insolvent in either the bankruptcy or business sense, the Company had, by that time, come on hard times, business was not good, current losses were being incurred, and it was tardy in the payment of many of its current obligations. At that time a 'liquidation agreement' was executed by all three persons signing as 'stockholders.' Its opening paragraph

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declared that it 'has been agreed between the stockholders of P. & M. Mfg. Co., that the following steps will be taken towards liquidation of the said company.' This major theme was reiterated in its closing lines. 'It is agreed by the stockholders that the liquidation of P. & M. Mfg. Co. will be completed as rapidly as possible.' The agreement consigned the complete inventory to Kyle for sale by him, the proceeds thereof to be paid over to P & M for distribution by the corporation to creditors and stockholders in a specified order of priority. 3 The corporate debts included three promissory notes payable to Kyle aggregating $7,500 for funds advanced the corporation.

Thereafter, about March 24, 1962, Kyle sold all or part 4 of the inventory. He did not, however, pay over the proceeds to P & M for distribution as called for by the liquidation agreement (paras. 2 & 8, note 3, supra). Rather, by the sort of self-help which generates so many bankruptcy problems, preferring the bird-in-hand with little care for the one-in-bush and apparently relying on 'the validity of the old saw that possession is 9 points of the law,' American Mannex Corp. v. Huffstutler, 5 Cir., 1964, 329 F.2d 449, 455, Kyle by-passed P & M to distribute to himself (see para. 8(3), note 3, supra) the amount of the notes plus interest.

As near as we can understand his theory, Kyle does not contend that this direct distribution was authorized by the agreement. Indeed, and to the contrary, his justification seems to be that all forgot the procedure prescribed in the formal agreement and what he did was largely in retaliation for similar self-help activities by fellow stockholders Mills and Black. 5 In short, what Black-Mills could do, he could do better.

Falling back on the frequent, much overworked and way too simplified, proposition that summary jurisdiction can reach only property in the possession, actual or constructive, of the bankrupt at the time of bankruptcy, Kyle asserts that since, he not the corporation, had possession on March 24, 1962, a full week before Mills and Black filed the voluntary petition in bankruptcy on April 1, the case had to be tried in a plenary suit. But as we pointed out in some detail, American Mannex Corp. v. Huffstutler, supra, 329 F.2d at 451 & n. 4, the physical possession-- here uncontradicted-- is not the statement of the solution, it is the beginning of the problem. Rather, 'the question' is 'whether the party has a legal right to maintain

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the actual, physical possession.' Ibid. In testing whether that question may be resolved in a summary proceeding, 'the mere assertion of a claim by an outsider,' such as Kyle, 'does not stop the bankruptcy proceeding in its tracks.' Id. at 453. Rather, we have often held, '(a) preliminary inquiry is necessary and appropriate to ascertain whether the case is one for a summary proceeding or a plenary suit.' Ibid. And in that preliminary inquiry,

'since the mere assertion...

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