In re Las Colinas, Inc.

• Decision Date: 14 May 1970
• Docket Number: No. 7469.,7469.
• Citation: 426 F.2d 1005
• Parties: In the Matter of LAS COLINAS, INC., and Eastern Shore Development Corporation, Debtors, Appellants. Appeal of Vigdor SCHREIBMAN, Appellant.
• Court: U.S. Court of Appeals — First Circuit

426 F.2d 1005 (1970)

In the Matter of LAS COLINAS, INC., and Eastern Shore Development Corporation, Debtors, Appellants.

Appeal of Vigdor SCHREIBMAN, Appellant.

No. 7469.

United States Court of Appeals, First Circuit.

Heard March 3, 1970.

Decided May 14, 1970.

COPYRIGHT MATERIAL OMITTED

Vigdor Schreibman, pro se and as attorney-in-fact, for appellants.

Vicente Zayas Puig, San Juan, P. R., with whom Baragano, Trias, Saldana & Francis, San Juan, P. R., was on brief, for Banco Popular de Puerto Rico, appellee.

Before ALDRICH, Chief Judge, and McENTEE and COFFIN, Circuit Judges.

McENTEE, Circuit Judge.

Appellants, Las Colinas, Inc. and Eastern Shore Development Corporation, are debtors in possession in proceedings brought under Chapter XI of the Bankruptcy Act. Their controversy with Banco Popular de Puerto Rico arises out of a plan to develop a large tract of land in Puerto Rico for residential and recreational purposes. The idea was conceived by Vigdor Schreibman and put into effect in 1961 by the appellants.¹ The bank provided interim financing in exchange for promissory notes secured by mortgages on certain portions of the land. By the end of 1963 differences between the parties led the bank to refuse to advance further funds, and, shortly thereafter, construction came to a halt. As the result of this impasse, in July 1964 the bank sued in the Commonwealth Superior Court to foreclose the mortgages.² Three months later appellants filed for an arrangement pursuant to Chapter XI.³

The present appeal is brought by the debtors in possession from an adverse decision of the bankruptcy court permitting the bank to have certain of the mortgaged property sold at public auction to satisfy the indebtedness.

Before turning to the merits of the case, we must determine whether or not the scope of our review is affected by the fact that the lower court, in rendering its opinion, adopted almost verbatim the proposed findings of fact and conclusions of law submitted by the bank at the close of trial so that the entire opinion occupying some twenty printed pages was written from end to end by counsel. Appellants contend that this adoption of findings and conclusions drafted by an interested party was improper, that the opinion does not reveal the discerning line for decision of some of the basic issues in the case and that under the circumstances we should render a decision on the merits in favor of the debtors.

Fed.R.Civ.P. 52(a) requires the trier of fact to find the facts specially and state his conclusions of law regarding the grounds of the action. The purpose of the rule, it is said:

"is to require the trial judge to formulate and articulate his findings of fact and conclusions of law in the course of his consideration and determination of the case and as a part of his decision making process, so that he himself may be satisfied that he has dealt fully and properly with all the issues in the case before he decides it and so that the parties involved and this court on appeal may be fully informed as to the bases of his decision when it is made." Roberts v. Ross, 344 F.2d 747, 751 (3d Cir. 1965).

The practice of inviting counsel to submit proposed findings of fact and conclusions of law is well established as a valuable aid to decision making. Nordbye, Improvements in Statement of Findings of Fact and Conclusions of Law, 1 F.R.D. 25, 30 (1940). Nonetheless, a clash of interests must be recognized to exist between efficient administration that leads hard pressed judges to turn to counsel for help and the undeniable right of losing counsel to be assured that his position has been thoroughly considered. The court's findings must ultimately represent the judge's own determination. United States v. Forness, 125 F.2d 928 (2d Cir.), cert. denied, City of Salamanca v. United States, 316 U.S. 694, 62 S.Ct. 1293, 86 L.Ed. 1764 (1942). The independence of the court's thought process may be cast in doubt when the findings proposed by one of the parties winds up as the court's opinion⁴ and the courts have not looked with favor upon the practice.⁵ The district court's action in this case does not in any way alter its deserved reputation for conscientiousness. We suspect no abandonment of judicial responsibility. At the same time we have a concern that as a matter of general practice in all courts within our jurisdiction the appearance reflects the actuality.

In Nyyssonen v. Bendix Corporation, 342 F.2d 531, 532 (1st Cir.), cert. denied, 382 U.S. 847, 86 S.Ct. 63, 15 L.Ed. 2d 86 (1965), this court considered the contention that, by adopting a portion of defendant's draft findings of fact verbatim, the district court denied plaintiffs due process of law. Although we rejected that contention, we expressed the view that "ordinarily we think it the better practice for the trial court to prepare its own findings with such help as it may derive from counsels' requests." We were emphatic that Nyyssonen, a complex patent litigation, was not an ordinary case. The district judge, while candidly recognizing his own limitations in the area, left no doubt that to the best of his ability he had made an independent study of the record. Under the circumstances, we thought him justified in adopting the proposed findings in order to avoid the risks of scientific and technological error. See Radio Corporation of America v. Philco Corporation, 275 F.Supp. 172, 210 (D.N.J.1967).

The issues confronting the court in the instant case do not resemble those in Nyyssonen, and we reiterate that we think the practice of adopting proposed findings verbatim should be limited to extraordinary cases where the subject matter is of a highly technical nature requiring expertise which the court does not possess.

Nevertheless, the Supreme Court, in an antitrust action, has held that "findings, though not the product of the workings of the district judge's mind, are formally his; they are not to be rejected out-of-hand, and they will stand if supported by evidence." United States v. El Paso Natural Gas Co., 376 U.S. 651, 656, 84 S.Ct. 1044, 1047, 12 L. Ed.2d 12 (1964). That is not to say, however, that courts will not make the most searching examination for error in such cases. In Louis Dreyfus & Cie. v. Panama Canal Company, 298 F.2d 733 (5th Cir. 1962), the court held that even though the clearly erroneous rule was not erased by the practice of adopting counsels' proposals, without the "badge of personal analysis," reviewing courts in close cases should feel more justified in remanding with a direction that further findings be made.⁶See Roberts v. Ross, supra, 344 F.2d at 752. The factors that led the Dreyfus court to find that "maximum doubt is cast on the findings of fact by their adoption from the litigant's proposals" are also present in the instant case. Both involve lengthy opinions containing discussion of numerous issues and sharply disputed facts founded upon evidence largely oral in nature. Consequently, we deem it appropriate to apply the Dreyfus standard to the facts developed in the opinion of the court below.

We in no way suggest that courts may not receive conventional requests for findings and adopt those submitted by one party and reject those of the other. However, the greater the extent to which the court's eventual decision reflects no independent work on its part, the more careful we are obliged to be in our review.

1. The Loans

Beginning in 1961, Schreibman and certain bank officials negotiated to establish the terms under which the bank would undertake the financing of the project. The bank initially agreed to finance the development of a fifty cuerda⁷ tract, further financial assistance to be conditional on the success of this first section. On the basis of plans, budgets, cost estimates and an estimated time of completion of six months, the bank, on September 19, 1961, approved a line of credit for site development in the amount of $482,000. The six month projection to complete the project proved optimistic, as work on the site did not get under way until March, 1962. On September 18, 1962, while work on the land was still in progress, the bank extended a second line of credit for $500,000 to be used for the construction of forty-six houses in the first section. The court found that both loans were to be repaid from the proceeds of the sale of lots and houses, and that although no time was specified, repayment was to be made within six months of each loan or within a reasonable time thereafter. In neither case was the deadline met.

Despite the fact that the work on both land and houses was incomplete in February-March 1963, the court found that on June 18, 1963, the bank increased the line of credit by $768,000, bringing the total to $1,750,000. As found by the court, this amount represented a maximum figure to be used to finish the site development and the construction of forty-six houses in the first section.⁸ Although the evidence disclosed no time for repayment, again the court concluded that the parties intended repayment to be made within six months. Accordingly, it held that in the absence of conclusive evidence to the contrary, the bank was entitled to demand payment in December 1963 of all sums owed to it.

Although there is no disagreement that the source of repayment was to be the sale of lots and houses, appellants dispute the finding that under the terms of the agreement the $1,750,000 credit line was a gross amount to be repaid in a lump sum at a specified time. Schreibman testified that the financing was to be accomplished by a revolving line of credit. Under this system, the bank would make loans up to $1,750,000 to develop section one. As lots and houses were sold, the proceeds would be used to reduce the amount of the indebtedness. The bank would then make further loans to enable the appellants to prepare more lots and houses for sale. By this method the total indebtedness would never exceed $1,750,000,...