In re Dania Corporation
| Decision Date | 28 October 1968 |
| Docket Number | No. 24638.,24638. |
| Citation | 400 F.2d 833 |
| Parties | In re the DANIA CORPORATION, Debtor. INTERNATIONAL BANK OF MIAMI, Appellant, v. J. H. BROCK, Trustee in Reorganization, Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Sam I. Silver, Miami, Fla., for appellant.
Irving M. Wolff, John H. Gunn, Thomas H. Wakefield, Earl D. Waldin, Jr., Miami, Fla., for appellee.
Before JOHN R. BROWN, Chief Judge, CLAYTON*, Circuit Judge, and SCOTT, District Judge.
This is an appeal from two orders of the District Court issued pursuant to Chapter X of the Bankruptcy Act, 11 U.S.C.A. §§ 501-676.
The first order appealed from confirmed the sale of 124,560 shares of Dania Bank stock owned by the debtor. The second order directed the rejection of an executory contract between the debtor and appellant. The District Judge's authority for ordering the sale and the rejection of the contract is in Section 116 of the Bankruptcy Act, 11 U.S.C.A. § 516.
The debtor, The Dania Corporation, is the corporate owner and holder of 174,893 shares of stock of The Dania Bank of Dania, Florida. This stock represents approximately 80% of the stock issue of The Dania Bank. It comprises the major asset of the debtor.
On July 23, 1965, The Wingreen Company made a note for $100,000.00 payable to the Inter National Bank, evidencing a loan made to Wingreen by the appellant bank. At the same time Dania Corporation pledged 4,680 shares of Dania Bank stock to the Inter National Bank as collateral for the loan made to Wingreen and signed a hypothecation agreement to make the stock available as collateral.
On January 25, 1966, The Dania Corporation filed a voluntary petition for reorganization under Chapter X. The petition was approved by the District Court as being filed in good faith and a trustee was appointed. Thereafter, Dania's petition was consolidated with the petitions for reorganization which had been filed by The Wingreen Company and The Lake Worth Company. The Court ordered the consolidation because of the close relationship between these three companies.
After the approval of Dania's petition, the trustee petitioned the Court for the entry of a rule to show cause as to why he should not be allowed to dispose of 124,560 shares of Dania Bank stock in accordance with the terms of an offer submitted by Investment Securities Corporation. He simultaneously petitioned for a rule to show cause why he should not be allowed leave to abandon various executory contracts involving stock pledges of Dania Bank stock. One of the contracts which the trustee sought to have rejected was the note in question here, i. e., the note between Wingreen and the Inter National Bank which was secured by 4,680 shares of Dania Bank stock owned by the debtor. The District Court entered both rules to show cause. After a hearing the order of sale and the order rejecting the executory contract were also entered. No plan for reorganization had been presented to the Court at the time these two orders were entered. The question before us is whether the District Judge properly exercised his authority to enter these orders.
Appellant challenges the District Court's authority to order the sale of the stock in question on the grounds that the order was entered before any reorganization plan had been considered, before any evaluation of the assets had been undertaken and when no emergency situation existed to warrant a sale under Section 116 of the Act. Appellant contends that the sale of this stock, which is the major asset of the debtor, would be tantamount to an ordinary bankruptcy liquidation which is not contemplated by a Chapter X proceeding except upon the failure of the reorganization plan.
Section 116 of the Act provides:
"Upon the approval of a petition, the judge may, in addition to the jurisdiction, powers, and duties in this chapter conferred and imposed upon him and the court — * * * authorize * * * a trustee * * * upon such notice as the judge may prescribe and upon cause shown, to * * * sell any property of the debtor, whether real or personal, upon such terms and conditions as the judge may approve * * *." (11 U.S.C.A. § 516)
The question of the power of the District Court to order the sale depends upon the circumstances at the time of the issuance of the Court's order on January 19, 1967. This was before submission of any reorganization plan to the Court and approximately eight months after the approval of the petition.
The debtor in these consolidated proceedings under Chapter X held 174,893 shares of the common stock of The Dania Bank, a state bank incorporated under the laws of the State of Florida to conduct a banking business. The Court had already found there was no equity for stockholders of Dania Corporation in the bank stock.
On December 31, 1966, the debtor owed $5,330,634.29 principal on obligations involving the pledging of all of The Dania Bank stock it held. The obligations were collateralized on a primary and secondary basis, and had earned interest as of December 31, 1966, in an amount of $258,238.71, or a total outstanding indebtedness of principal and interest as of December 31, 1966, of $5,588,873.00.
Interest was accruing daily and the stockholdings of the debtor were subjected to collateral pledges involving the Florida National Bank of Jacksonville, the Citizens National Bank of Orlando, the United Security Life Insurance Company, Garvice D. Kincaid, the Lexington Finance Corporation, the Inter National Bank of Miami and the American National Bank of Jacksonville, Florida.
The Dania Bank advised the trustee, who advised the Court, that payments of dividends on the stock issued by The Dania Bank were suspended. The questionable market value of Dania Bank stock held by the debtor was deteriorating rapidly and the estate's equity therein was diminishing daily. In addition, a challenge had been lodged by Garvice D. Kincaid on behalf of himself and the Lexington Finance Corporation seeking to reclaim some $31,000.00 from the trustee, the last dividends paid by The Dania Bank on its stock in March of 1966. (The sum sought to be recovered by Kincaid was the dividends paid on the 124,560 shares of Dania Bank stock upon which Kincaid and/or Lexington Finance Corporation held collateral security of a secondary nature.) Added to that claim were appeals addressed to two orders, the defense of which would have caused the estate to experience administrative expenditures. Out of the orders denied the motions to vacate the order of consolidation. The other approved the debtors' petition for reorganization under Chapter X, found good faith and appointed a trustee.
The Court properly exercised its statutory power to order the challenged sale. Section 116 of the Act empowers the Court to authorize the trustee to sell any property of the debtor, for cause shown, upon such terms and conditions as the Judge may approve. This power may be exercised any time after the Court has approved the debtor's petition for reorganization. The power may be utilized in the sound discretion of the District Judge; and the Appellate Court is not at liberty to substitute its judgment for that of the District Judge unless there is an abuse of discretion. Marathon Foundry and Machine Co. v. Schwartz, 228 F.2d 594 (7 Cir. 1956).
Appellant cites the case of Fidelity Assurance Assn. v. Sims, 318 U.S. 608, 63 S.Ct. 807, 87 L.Ed. 1032 (1943), for the proposition that the sale of the major portion of the assets of a debtor is impermissible in a Chapter X proceeding except upon failure of the reorganization plan. However, a close reading of that opinion shows it to be not applicable here. It holds that a reorganization petition should be dismissed as not being filed in good faith where liquidation, and not a readjustment of the rights of creditors, was the only possibility at the outset. Fidelity Assurance Assn. does not apply here, where the petition was in fact filed in good faith at the inception, with a view toward corporate reorganization, but the sale of the debtor's assets became necessary some eight months later.
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