Diamond Door Co. v. Lane-Stanton Lumber Co., LANE-STANTON

• Citation: 505 F.2d 1199
• Decision Date: 21 October 1974
• Docket Number: LANE-STANTON,No. 73-1590,73-1590
• Parties: In the Matter of DIAMOND DOOR COMPANY, a California corporation, Alleged Bankrupt-Appellant, v.LUMBER COMPANY, a California corporation, et al., Petitioning Creditors-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1199

505 F.2d 1199 In the Matter of DIAMOND DOOR COMPANY, a California
corporation, Alleged Bankrupt-Appellant,
v.
LANE-STANTON LUMBER COMPANY, a California corporation, et
al., Petitioning Creditors-Appellees. No. 73-1590. United States Court of Appeals, Ninth Circuit. Oct. 21, 1974.

Page 1201

Lawrence A. Diamant, Robinson & Wolas, Los Angeles, Cal., for alleged bankrupt-appellant.

Barnard F. Klein, Beverly Hills, Cal., for petitioning creditors-appellees.

Before HAMLEY and DUNIWAY, Circuit Judges, and NEILL, District judge. ^*

OPINION

HAMLEY, Circuit Judge:

This is an appeal from a partial adjudication by the district court under Rule 56(d), F.R.Civ.P., entered in an involuntary bankruptcy proceeding. The alleged bankrupt, Diamond Door Company (Diamond), appeals from a district court order determining that Diamond had committed an act of bankruptcy as defined in section 3(a) of the Bankruptcy Act, 11 U.S.C. 21(a). We affirm.

On November 24, 1970, Lane-Stanton Lumber Company and other creditors of Diamond filed a petition to have Diamond adjudged an involuntary bankrupt. Petitioners alleged that Diamond, while insolvent and within four months of bankruptcy, committed, on two occasions, the second act of bankruptcy, a preferential transfer. ¹ For present purposes we need notice only the alleged act of bankruptcy occurring on July 27, 1970. Petitioners claim that on that date Diamond, while insolvent, executed and delivered to Mercury Hardwood Lumber Company (Mercury), a creditor, a financing statement and security agreement on the physical assets of Diamond to secure a previously-existing unsecured account 'with the intent to prefer such creditor over his other creditors.' Diamond denied the allegations of the involuntary petition and demanded a trial by jury in accordance with section 19(a) of the Bankruptcy Act, 11 U.S.C. 42(a).

The district court thereafter referred the proceeding, pursuant to Rule 53, F.R.Civ.P., to a referee in bankruptcy 'as Special Master' for the specific purpose of hearing the evidence and reporting to the court, pursuant to Rule 53(e)(3) his findings upon the issues in respect to the insolvency of, and claimed act of bankruptcy by, Diamond.

In answer to petitioners' request for admissions, Diamond thereafter admitted that, on July 24, 1970, it had executed a financing statement and security agreement in favor of Mercury by which Diamond granted a security interest in all of Diamond's property, consisting of goods, chattels, tangible and intangible properties, including parts, machinery, equipment, fixtures, fittings and tools. Diamond further admitted that the security interest was given to secure a promissory note of forty thousand dollars and all other or additional indebtedness due or to become due. Diamond also admitted that, prior to the granting of this security interest, Mercury had held no security for this forty thousand dollar 'indebtedness,' except that the company had a right to stop any goods in transit under section 2705 of the California Commercial Code.

After an evidentiary hearing before the Special Master, the latter filed a report covering both the issues of preference and insolvency. With reference to the preference the Special Master found the facts to be as admitted, except that the Special Master did not find that, in addition to the forty thousand dollar promissory note, the security was given to secure, as stated in the security

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agreement, 'all other or additional indebtedness due or to become due.' The Special Master also concluded that:

'The effect of the granting of the security interest was to give Mercury Hardwood Lumber Company a greater percentage of its unsecured indebtedness than other unsecured creditors of Diamond Door Company.'

Finally, the Special Master found that, at the time this preference was given, Diamond was insolvent.

Petitioners thereafter moved in the district court for summary judgment pursuant to Rule 56 on both the preference and the insolvency issues. In making this motion petitioners relied upon the pleadings, records and files, especially the answers to requests for admissions, the report of the Special Master, the statement of reasons and memorandum of points and authorities filed in support of the motion, and the proposed summary judgment and proposed findings of fact and conclusions of law filed with the motion.

Diamond filed points and authorities in opposition to the motion for summary judgment, but without supporting affidavits or other supporting documents. The position asserted by Diamond was exclusively legal in nature, confined primarily to the argument that it was entitled to a jury trial on all issues, and that in such a trial the findings of the Special Master are not conclusive, but merely evidence to be read to the jury.

In its memorandum opinion granting in part, and denying in part, the motion for...