In Re Robbins Converting Corp., 710

• Decision Date: 27 April 1971
• Docket Number: No. 710,Docket 34495.,710
• Parties: In the Matter of ROBBINS CONVERTING CORP., Joseph W. Rosenberg, Trustee-Appellee, Ruben Schwartz and Wasserman & Taten, Appellants.
• Court: U.S. Court of Appeals — Second Circuit

441 F.2d 1096 (1971)

In the Matter of ROBBINS CONVERTING CORP., Joseph W. Rosenberg, Trustee-Appellee,

Ruben Schwartz and Wasserman & Taten, Appellants.

No. 710, Docket 34495.

United States Court of Appeals, Second Circuit.

Argued April 1, 1971.

Decided April 27, 1971.

Leonard Schwartz, New York City (Siegel, Sommers & Schwartz, New York City, on the brief), for appellee.

Albert Lyons, New York City, for appellants.

Before FRIENDLY and FEINBERG, Circuit Judges, and MANSFIELD, District Judge.^*

MANSFIELD, District Judge:

Appellants, a practicing attorney and a firm of certified public accountants, rendered services in connection with the unsuccessful efforts of Robbins Converting Corp. ("Robbins") to avert bankruptcy through an agreement for a bulk sale of its assets to a purchaser, Danny Fabrics Corp. ("Danny"), which agreed to pay Robbins' general creditors 25% of their claims. Danny defaulted and Robbins was then placed in bankruptcy. This appeal presents the question of whether appellants are entitled as against the Trustee in Bankruptcy to payment of $4,000 out of certain funds deposited in escrow and forfeited by Danny, the prospective purchaser of the assets. The district court affirmed the Referee in Bankruptcy's order granting summary judgment in favor of the Trustee and dismissing appellants' application for an order directing the Trustee to pay appellants $2,000 each out of the escrow funds. We affirm.

The essential facts are undisputed. On April 4, 1968, Robbins, a textile converter on the verge of bankruptcy,¹ executed an agreement with Danny whereby Robbins would make a bulk sale of its assets to Danny pursuant to Article VI of the New York Uniform Commercial Code in consideration of Danny's agreement to pay Robbins' general creditors 25% of their claims.² Danny also agreed to deposit $7,500 in escrow³ with the law firm of Salon, Grossman, Ortner & Gershowitz (the "escrowee"), subject to the condition that if any of Robbins' creditors should prevent the consummation of the bulk sale (such as by filing an involuntary petition in bankruptcy or enjoining the contemplated sale), the $7,500 would be returned to Danny. If, on the other hand, the bulk sale should be consummated, or if Danny should default in its agreement to purchase the assets, the $7,500 would be used to pay "administration expenses," including $2,000 to appellant Ruben Schwartz for "legal services rendered to Robbins," and $2,000 to appellant Wasserman & Taten for "accounting services rendered to the creditors." Another $2,500 was to be parcelled out to other persons not parties to this action. The remaining $1,000 of the escrowed $7,500 was apparently to go to Robbins.

Danny deposited the $7,500 in escrow but defaulted in making payment of the balance due under the agreement, with the result that the sale was not consummated. Robbins was placed in bankruptcy pursuant to an involuntary petition, and adjudicated a bankrupt on May 21, 1968. The escrowee, refusing to pay $2,000 each to Ruben Schwartz and Wasserman & Taten, respectively, out of the escrow funds, turned over the entire $7,500 to the Trustee in Bankruptcy upon his request. By decision dated November 14, 1969, the Referee in Bankruptcy denied appellants' application for an order directing the Trustee to pay them $2,000 each, without prejudice to their applying in the bankruptcy proceeding pursuant to § 2(a) (21) of the Bankruptcy Act, 11 U.S.C. § 11(a) (21), for an allowance to compensate them for services rendered to the bankrupt. The Referee's order was confirmed by Judge Bonsal and upon petition for review by Judge MacMahon.

All parties concede that appellants would be entitled to payment out of the escrowed $7,500 only if that money did not become the bankrupt's property. As we view the undisputed facts, however, when Danny defaulted upon its...