Aune v. Reynders, 7699

• Decision Date: 27 April 1965
• Docket Number: 7956.,No. 7699,7699
• Parties: James B. AUNE, Robert E. Stamm, Sr., George Bettemiller, M.D., Virginia K. Moras, Hazel E. George and Karl S. Moras, Appellants, v. Eugene R. REYNDERS, Receiver of Shawano Development Corporation, a corporation, debtor, Foremost Research Foundation, Inc., and Securities and Exchange Commission, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

344 F.2d 835 (1965)

James B. AUNE, Robert E. Stamm, Sr., George Bettemiller, M.D., Virginia K. Moras, Hazel E. George and Karl S. Moras, Appellants, v. Eugene R. REYNDERS, Receiver of Shawano Development Corporation, a corporation, debtor, Foremost Research Foundation, Inc., and Securities and Exchange Commission, Appellees.

Nos. 7699, 7956.

United States Court of Appeals Tenth Circuit.

April 27, 1965.

Karl S. Moras, Waukegan, Ill., pro se, and for other appellants.

No appearance for Eugene R. Reynders, receiver.

Wayne K. Ramsay, Jacksonville, Fla. (Henderson, Godfrey, Kline & Uchner, Cheyenne, Wyo., and Milam, Ramsay & Martin, Jacksonville, Fla., on the brief), for appellee Foremost Research Foundation, Inc.

David Ferber, Solicitor, Securities and Exchange Commission (Philip A. Loomis, Jr., General Counsel, Thomas B. Hart, Regional Administrator, Richard M. Phillips, Special Counsel, Robert W. Cox, Attorney, and William D. Scheid, Attorney, Securities and Exchange Commission, on the brief), for appellee Securities and Exchange Commission.

Before PICKETT and BREITENSTEIN, Circuit Judges, and CHRISTENSEN, District Judge.

BREITENSTEIN, Circuit Judge.

These consolidated appeals relate to the same bankruptcy proceedings and attack orders of the district court rejecting a Chapter X plan of reorganization and adjudicating bankruptcy.

On April 3, 1959, Shawano Development Corporation, a Florida corporation, filed in the United States District Court for the District of Wyoming a debtor's petition for reorganization under Chapter X of the Bankruptcy Act.¹ The petition stated the assets of Shawano to be approximately $4,000,000. A trustee was appointed.² He found the assets to be $5,000 advanced by the president of Shawano, 920 acres of encumbered Florida farm land, and 200 unpatented mining claims in Wyoming. On the liability side were "scores of creditors, secured and unsecured" and 18,000 shareholders. The total amount of claims was never determined but approximated $450,000.

The Trustee promptly investigated the finances and operations of Shawano. The Florida land was sold and produced a net of $13,735 for the estate. The mining claims were not being operated. Because they were unpatented, development work was necessary to the retention of title. Under federal and Wyoming law the cost of such work was estimated to be about $20,000 annually.

Late in 1959, the Trustee proposed a plan of reorganization which provided for the operation of the mining property subject to a "net profit interest" of the debtor. This plan required approval by the Atomic Energy Commission and that approval was never obtained. In October, 1960, the court authorized an agreement for the mining of the claims by Sigma Mining Company with the payment of royalty to the Trustee. From then to July, 1963, the claims produced a gross revenue to the Trustee of about $150,000. In a petition of the Trustee, dated January 23, 1963, for instructions he stated that the value of the claims "does not exceed $150,000 and * * * may be considerably less." In a June 21, 1963, report filed with the court the Trustee stated that the Sigma agreement had been terminated, that no further mining had been done because no new ore bodies had been defined, and that Sigma would not operate further under the agreement with the Trustee. A new contract with Sigma at a reduced royalty rate was approved on July 2, 1963. Gross receipts from that date through July 31, 1964, approximated $33,000 out of which royalties of $9,700 had to be paid. The record does not show what future return to the debtor from the mining operations may be expected.

Shawano was incorporated in 1951. From then to the date of the Chapter X petition, Shawano engaged in a series of corporate mergers, exchanges of property and stock transactions to the benefit of its officers and others and to the loss of the company. The report of the Trustee estimated that stock of a market value of $16,539,000 was issued and said that it was doubtful if the assets received by Shawano had a value of even $2,271,000. No good purpose would be served by a resume of the complicated manipulations. It is enough to say that Shawano and its shareholders were always on the losing end.

The Trustee recommended that various suits be brought in Florida and New York against officers, former officers and others to recover something for the Shawano creditors and stockholders. In his January 23, 1963, report, the Trustee estimated the cost of such litigation to be more than $60,000. Various persons were indicted in the United States District Court for the Southern District of New York for offenses growing out of the Shawano operations. Pursuant to court authorization, suit was instituted in Florida against a number of individuals and companies. The amount claimed was about $3,000,000. One of the defendants is Foremost Research Foundation, an appellee in each of these appeals.

On April 18, 1963, the court reviewed the Chapter X proceedings and ordered that unless a feasible plan for reorganization was submitted, the court would require cause to be shown as to why Shawano should not be adjudicated a bankrupt. The Trustee then submitted a plan which stated "this is a liquidating plan and no continuity of corporate operation is contemplated at present." The plan proposed the sale of the mining claims or, if a fair sale could not be made, the negotiation of a mining contract to assure the annual assessment work required by federal and state law. The Trustee was to "prosecute all claims for relief and choses in action belonging to the debtor * * * where it appears reasonably probable that such action * * * is for the best interests of the estate of the debtor." Upon the confirmation of the plan the Trustee was to pay in full the holders of trustee's certificates and one-third of the secured claims. The balance of the secured claims was to be paid from the recoveries in the litigation.

On August 12, 1963, the court ordered that a hearing be held on the proposed plan; that the Trustee should notify the debtors, creditors, stockholders, Secretary of the Treasury, and the Securities and Exchange Commission; and that if the Court determines that the reorganization plan is not fair and feasible, it will "dismiss the proceedings or adjudicate the debtor bankrupt." On October 7, 1963, the Trustee paid $114,420 into the registry of the court.³

A hearing was held on September 30, 1963, and a number of creditors objected to the plan. The Commission and six stockholders supported the plan. In the course of the proceedings the attorney for the Trustee offered an oral amendment to the plan whereby three unnamed secured creditors⁴ were to be paid the full amount of principal claimed and the court would grant 60 days in which stockholder interests could raise money to finance the pending and proposed litigation. On October 11, 1963, the court made findings of fact and conclusions of law.

The court found that the notice required by law had been given and held:

"That the proposed plan of reorganization of the Trustee is not fair, equitable or feasible and should be and is hereby disapproved."

The court allowed trustees' and attorneys' fees and expenses in the amount of $19,500, approved secured claims in the amount of $92,348, and determined the preferred tax claims to be approximately $10,900. The total of these amounts exceeded the sum which the Trustee had paid into the registry of the court. In its judgment entered on the same day the court ordered distribution to the trustees, attorneys and secured creditors. The court also ordered that:

"the Court retain jurisdiction of the matter for the purpose of distributing any other monies that may come into the hands of this court, and for the ultimate purpose of either dismissing the proceedings in reorganization or adjudicating the debtor corporation a bankrupt. On or before November 8, 1963, the Court will make final disposition of these proceedings by either dismissing the proceedings or by adjudicating the debtor a bankrupt, * * *."

No appeal was taken from the October 11 order. On November 8 the court adjudged Shawano to be a bankrupt.

The six Shawano stockholders who supported the plan filed, on December 16, 1963, a notice of appeal from the November 8, 1963, order.⁵ They designated the Receiver as appellee but he has presented neither brief nor argument. The Securities and Exchange Commission was a party to the district court proceedings pursuant to 11 U.S.C. § 608. That section provides that the Commission may not appeal. The Commission has filed briefs and made arguments in this court on the theory that it is an appellee. In so doing it has aligned itself with the appellants.⁶ The only resistance to the appeals comes from Foremost Research Foundation which is an unsecured creditor with a claim of about $31,000. The Trustee in the Chapter X proceedings filed a counterclaim against Foremost in the amount of about $1,125,000. Foremost is a defendant in the Florida litigation brought by the Trustee. No party challenges the right of any other party to participate in the appellate proceedings. In the circumstances we shall accept the situation with the comment that the entire history of Shawano is obscured by a cloud of mystery.

Foremost has moved to dismiss and to strike the appeal in No. 7699 because it is untimely. The governing section of the Bankruptcy Act⁷ provides that appeals under the Act shall be taken within 30 days after written notice to the aggrieved party of the order complained of and, if such notice is not served, within 40 days of the entry of the order. In this case written notice was not given and the appeal filed on December 16, 1963, is within 40 days of the order of November 8, 1963. The motions are without merit as is also the motion of Foremost to strike the briefs of the appellants and of the Commission.

The November 8 order was not concerned with the plan for...