Boyce v. Chemical Plastics

• Decision Date: 06 July 1949
• Docket Number: No. 13925.,13925.
• Citation: 175 F.2d 839
• Parties: BOYCE et al. v. CHEMICAL PLASTICS, Inc.
• Court: U.S. Court of Appeals — Eighth Circuit

175 F.2d 839 (1949)

BOYCE et al. v. CHEMICAL PLASTICS, Inc.

No. 13925.

United States Court of Appeals Eighth Circuit.

July 6, 1949.

M. E. Culhane, Minneapolis, Minn. (A. E. Bryngelson, Minneapolis, Minn., was with him on the brief), for appellants.

William Mitchell, St. Paul, Minn. (Francis D. Butler and Doherty, Rumble, Butler & Mitchell, St. Paul, Minn., were with him on the brief), for appellee.

Before GARDNER, Chief Judge, and THOMAS and RIDDICK, Circuit Judges.

THOMAS, Circuit Judge.

This is an appeal from a judgment of the district court affirming and adopting the findings of fact and conclusions of law of the Referee in Bankruptcy, and denying the prayer of appellants' petition that the adjudication of bankruptcy of Chemical Plastics, Inc., be vacated and that the bankruptcy proceedings be dismissed.

Chemical Plastics, Inc., is a corporation organized under the laws of Minnesota in July, 1938. In July, 1946, the board of directors by resolution established and appointed an executive committee consisting of four of its members specifically named. The resolutions of the board authorized the committee to borrow money in the name of the corporation for the purpose of carrying on its business and to execute checks, notes or other instruments in connection therewith. Thereafter one of the committee ceased to be a member of the board of directors, leaving but three members of the executive committee.

In September, 1948, a meeting of the executive committee was held at which the three remaining members, namely, Fred P. Memmer, Louis W. Hill, Jr., and Philip W. Fitzpatrick, were present. At that meeting it was unanimously agreed that the corporation should file a voluntary petition in bankruptcy and the officers were instructed to proceed accordingly.

The board of directors had not authorized such action on the part of the committee, and the referee and the court concluded its action in so doing was invalid.

Pursuant solely to such invalid action of the executive committee, on October 19, 1948, a voluntary petition signed by the president and the assistant treasurer of the corporation was filed in the district court praying that the corporation be adjudged to be a bankrupt. On the same day a decree was entered by the district court wherein it was adjudged that "Chemical Plastics, Inc., is a bankrupt under the Act of Congress relating to bankruptcy" and an order was entered referring the matter to the referee for all further proceedings. On November 5, 1948, a first meeting of the bankrupt's creditors was held at which counsel for petitioners in this controversy appeared and objected to the transaction of the business of the meeting on the ground that the filing of the bankruptcy petition had not been authorized, whereupon the meeting was adjourned.

On November 15, 1948, a meeting of the board of directors of the bankrupt was held at which all the members of the board were present except one; and the following resolution was unanimously adopted: "Resolved that the Board of directors of Chemical Plastics, Incorporated, pursuant to full and comprehensive discussion, and with a full understanding of all of the acts and efforts made by the corporation, through its officers and the members of its executive committee, do hereby approve, ratify and concur in the decision reached by them to file a petition in voluntary bankruptcy; and this board does hereby unanimously agree that in the face of all of the circumstances and in the face of the present financial condition of the corporation and the future prospects relative to procurement of materials, etc., that there is no alternative remaining except bankruptcy, and that this board would have approved and directed that a voluntary petition in bankruptcy be filed if as a board it had been convened immediately prior to October 18, 1948."

On December 10, 1948, pursuant to due notice in accordance with the by-laws of the bankrupt, a special meeting of the stockholders was held. A general discussion of the bankrupt's financial condition and affairs was had. The meeting was informed of the action of the executive committee and the subsequent approval thereof by the board of directors. A motion was made by a stockholder and seconded to have the board of directors move to dismiss the bankruptcy proceeding. On the question of adopting this motion 52,280 2/3 shares voted in the negative and 23,411 shares in the affirmative.

On November 15, 1948, the appellants filed a petition of intervention with the referee praying "that the adjudication of of the Chemical Plastics, Inc., a bankrupt, be vacated and that this bankruptcy proceeding be dismissed" on the grounds: That the filing of the voluntary petition in bankruptcy was never authorized by the corporation, or by its board of directors; and that the only purpose of filing such voluntary petition in bankruptcy was for the purpose of using the court's jurisdiction to defraud the petitioners and others similarly situated.

It was alleged "that at the time the voluntary petition was filed and long prior thereto * * * Fred P. Memmer, P. W. Fitzpatrick and Louis W. Hill, Jr., dominated and controlled the board of directors and the affairs of the corporation and they alone caused the voluntary petition in bankruptcy to be filed"; that the board of directors owned a controlling number of shares of the bankrupt's stock and that they were its principal creditors; that the purpose of filing the voluntary petition was to bring about the appointment of a trustee whom the three above-named directors expected to control and that they expected either directly or indirectly to acquire the assets of the corporation and to absorb the proceeds of any sales as dividends on their claims to the exclusion of the appellants. That the petitioners were induced to purchase their stock upon representations of the agents of the corporation as to the value of its assets made when the named directors were members of the board; that the corporation is not insolvent; and that there are no suits pending against it and none of its creditors are threatening it.

A hearing was had on the petition of intervention and the bankrupt's answer thereto before the referee on November 26, 1948, and an adjourned hearing on December 15, 1948, after which the referee made findings of fact and conclusions of law and denied the relief prayed for by the petitioners.

Upon petition of appellants to review the referee's order the court adopted his findings and conclusions. The findings are specific and cover all the issues.

Finding No. 7 reads: "All the testimony and evidence introduced upon the hearing of this controversy fails to sustain petitioners' allegation contained in their petition here, concerning and relating to fraud, misconduct, the corporation's solvency, the corporation's profit making, the corporation's ability to maintain itself as a going concern, wrongful designs to control the appointment of a bankruptcy trustee, to acquire the assets in bankrupt's estate, and to absorb the proceeds thereof."

Finding No. 13 reads as follows: "Petitioners did not contend, and there was no proof introduced upon the hearing showing, that the directors of bankrupt corporation did not have authority to ratify the action of the president and assistant treasurer in placing the corporation in bankruptcy or that the meeting of the directors for the purpose of such ratification was in any way irregular or that the resolution of the directors, ratifying such action, is not valid or that the action of the majority of the stockholders * * * is not valid or that the meeting of the stockholders was in any way irregular or that any fraud or misconduct occurred in connection with either the ratification by the directors or the action of the majority of the stockholders. Accordingly the referee finds that the action of the directors by way of ratification and the action of the stockholders adverse to dismissal of this bankruptcy matter were valid and were had in good faith."

The referee and the...