In re Atlas Sewing Centers, Inc.
| Decision Date | 12 July 1967 |
| Docket Number | 22852,No. 24157,24449,20936,23891,24495.,24157 |
| Citation | 384 F.2d 66 |
| Parties | In the Matter of ATLAS SEWING CENTERS, INC., Debtor. JONES FINANCIAL CORPORATION, Appellant, v. Irwin RAY, as Trustee in Bankruptcy for Atlas Sewing Centers, Inc., Appellee. The CHASE MANHATTAN BANK, Appellant, v. Irwin RAY, as Trustee for Atlas Sewing Centers, etc., et al., Appellees. UNITED STATES of America, Appellant, v. Irwin RAY, Appellee. Irwin RAY, Trustee in Reorganization of Atlas Sewing Centers, Inc., Appellant, v. JONES FINANCIAL CORPORATION, Appellee. J. Charles BURDEN, Jr., Appellant, v. Irwin RAY, Trustee in Reorganization of Atlas Sewing Centers, Inc., et al., Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
George F. Meister, Harry L. Durant, Miami, Fla., Harold M. Hoffman, New York City, Jack M. Gordon, New Orleans, La., for Jones Financial Corp.
J. Charles Burden, Jr., David A. Sheffield, Alexandria, La., for J. Charles Burden, as co-proponent, and Atlas Sewing Centers, Inc.
Paul Gonson, S. E. C., Washington, D. C., for Securities and Exchange Commission.
John H. Gunn, Miami, Fla., for Bank Creditors group.
Walter Beckman, Miami, Fla., for Horace F. Cordes, receiver.
Feibelman, Friedman, Hyman & Durant, Paul G. Hyman, Miami, Fla., for Associates Discount Corp.
Mitchell Rogovin, Asst. Atty. Gen., Tax Div., Dept. of Justice, Washington, D. C., Lee A. Jackson, Chief, Appellate Section, Dept. of Justice, Washington, D. C., William A. Meadows, Jr., U. S. Atty., Miami, Fla., Edward A. Kaufman, Asst. U. S. Atty., Miami, Fla., Fred B. Ugast, Atty., Dept. of Justice, Washington, D. C., for the United States.
Wm. P. Simmons, Jr., and Garrette J. Wimpey, of Shutts & Bowen, Miami, Fla., for Chase Manhattan Bank.
Before BROWN, GOLDBERG and AINSWORTH, Circuit Judges.
Rehearing En Banc Denied July 12, 1967.
This appeal is from the findings and order of the district court resulting from our remand, by several orders, of all matters involved in the several cases growing out of the bankruptcy proceedings of Atlas Sewing Centers, Inc. The appeal consolidates all of the remaining matters at issue in these cases, with but two exceptions: (1) The question whether Atlas is finally to be adjudicated a bankrupt, which is now set for hearing in district court on July 13, 1967, and (2) the question of whether the onetime Trustee in Bankruptcy is to be held in civil and criminal contempt of this Court, concerning which we emphasize that we here make no finding, conclusion, or judgment at this time.
The first shot was fired on June 22, 1962, when Atlas filed a voluntary petition for reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., in the District Court for the Southern District of Florida. Atlas, a Delaware corporation with its principal place of business in Miami, Florida, was engaged primarily in retail sales of sewing machines through local outlets throughout the United States (and including Puerto Rico). Customers generally bought the machines by installments, using installment sales contracts or chattel mortgages.
On December 4, 1961, about six months before the filing of the Chapter X petition, Atlas had entered into a financing agreement with the Jones Financial Corporation, whereby Jones lent money to Atlas in return for the pledge of installment sales security agreements. Atlas had to pledge $2.86 of paper for each $1.00 lent, and the agreement also provided for daily reports from Atlas, separate bank accounts, accounting for all repossessions, and attorney's fees. Jones made an initial advance of $250,000 under this agreement, and continued to lend substantial sums.
After the filing of the voluntary petition on June 22, 1962, (when the outstanding indebtedness was $431,780.) the Trustee, Irwin Ray, sought to procure additional financing from Jones. Jones and the Trustee agreed to recognize the priority of the December 4, 1961, agreement, and entered into a new financing agreement, dated August 16, 1962, which was similar to the December 4 agreement except that collateral was required at 200 per cent of the sum lent rather than 286 per cent. On August 20, the District Court authorized the Trustee to enter into the new agreement.
Further large sums of money were advanced under the new agreement, amounting in the aggregate to more than $600,000.
On June 4, 1963, however, Jones filed a petition in District Court requesting relief because the Trustee was disregarding the financing agreement by failing to deposit collections in the special bank account and instead commingling those funds, by failing to keep the proper two-to-one ratio of collateral to loan, and by failing to account for repossessed merchandise and indeed by repledging the repossessed merchandise as security with other lenders.
The Trustee moved to dismiss the appeal, filing a brief in support of the motion. Jones filed a reply brief on this issue. On December 23, we held that the motion to dismiss would be carried with the case. The order granting interim relief remained in effect.
On January 29, 1964, Jones filed with this Court a petition for a rule to show cause why the Trustee should not be held in contempt of the October 11, 1963, order granting the requested interim relief. Annexed to the petition were two affidavits: one by George F. Meister, Jones's Miami attorney, and the other by Walter S. Seidman, Jones's president. Both affidavits claimed that the Trustee had flagrantly violated the October 11, 1963, order. After a response by the Trustee, and an answering affidavit from Seidman, we ordered, on February 26, 1964, that David W. Dyer, then District Judge, serve as Special Master to hold hearings and to report his findings and conclusions on the question of whether the Trustee had violated our October 11, 1963 order.
Judge Dyer held hearings forthwith, and reported on March 12 1964, that the Trustee had violated one of the provisions of the October 11 order in that the Trustee had failed to segregate the proceeds of sales of collateral under the December 4, 1961, financing agreement.
Upon receipt of Judge Dyer's report we ordered, on March 25, 1964, that any party might file objections to the report, and that the civil contempt proceeding would be heard along with the argument of the appeal in No. 20936 on its merits, on April 15, 1964.
On April 15, the Trustee filed a report of compliance with the October 11, 1963, order. On April 16, we held that the Trustee should segregate the proceeds from collateral under the December 4, 1961, financing agreement, in accordance with the October 11 order, and ordered the Trustee to file within 20 days a report of compliance. We also ordered: "Upon receipt of said report and any objections thereto, the rule for civil contempt will be marked submitted."
On May 5, 1964, the Trustee reported his compliance.
On May 8, 1964, came the first appearance of the matters most germane to the present action. On that date J. Charles Burden, Jr., and the Trustee, as co-proponents, filed a plan of corporate reorganization of Atlas.
On May 15, Jones objected to the Trustee's May 5 report of compliance with the October 11, 1963, order. On June 17, Jones supplemented these objections with a report, supported by affidavits, which claimed that the Trustee and the Vice-President of Atlas, Mrs. Charlotte Blackburn, had secreted certain ledger cards recording individual sales which had been paid in full. The effect of such secretion, according to Jones, was that substantial sums of money collected by Atlas, and owing to Jones, were concealed.
On June 19, 1964, the District Court held a hearing on the feasibility of the reorganization plan. At that hearing, Burden testified that he had deposited $100,000 which he had promised as an earnest of his good faith. He promised that he would provide an additional $900,000 for the company within 48 to 72 hours thereafter.
On June 23, we ordered the Trustee to reply to Jones's renewed charge of malfeasance within ten days. The Trustee replied on July 6, denying the allegations. On August 3, this Court approved Judge Dyer's findings of March 11, and in the light of the new allegations by Jones again referred to Judge Dyer as Special Master, the question of compliance with the October 11, 1963, order.
On August 4, 1964, the day after we re-referred the contempt matter to Judge Dyer, Burden and the Trustee, as co-proponents, filed in District Court an amended plan of reorganization. Under this plan, Burden was obligated to pay to the reorganized company $1,000,000 immediately. The plan further provided:
The said J. Charles Burden, Jr., does further obligate himself, should the...
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