Coleman v. Alcock

• Decision Date: 05 January 1960
• Docket Number: No. 17662.,17662.
• Citation: 272 F.2d 618
• Parties: D. C. COLEMAN, Sr., As Trustee of Florida-Carolina Lumber Company, Bankrupt, Appellant, v. Charles ALCOCK, P. J. Davis, Clarence E. Hood, Jr., Individually and As Officers and Directors of Florida Carolina Lumber Company and Southern Creosoted Lumber Co., Inc., Southern Creosoted Lumber Co., et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

272 F.2d 618 (1959)

D. C. COLEMAN, Sr., As Trustee of Florida-Carolina Lumber Company, Bankrupt, Appellant, v. Charles ALCOCK, P. J. Davis, Clarence E. Hood, Jr., Individually and As Officers and Directors of Florida Carolina Lumber Company and Southern Creosoted Lumber Co., Inc., Southern Creosoted Lumber Co., et al., Appellees.

No. 17662.

United States Court of Appeals Fifth Circuit.

December 4, 1959.

Rehearing Denied January 5, 1960.

H. I. Fischbach, Fischbach & Lurie, Miami, Fla., for appellant.

Harold Friedman, William B. Roman, Miami, Fla., Seymour B. Liebman, Fred R. Baisden, Thomas H. Barkdull, Jr., Miami Beach, for appellees.

Aaron M. Kanner, Miami, Fla., for P. J. Davis.

Sibley, Grusmark, Barkdull & King, Miami Beach, Fla., for Alcock and Hood.

Copeland, Therrel, Baisden & Peterson, Miami Beach, Fla., for Miami Beach First Nat. Bank.

Feibelman & Friedman, Miami, Fla., for Leo Robinson, Dania Bank and Southern Creosoted Lumber Co.

Before RIVES, Chief Judge, and TUTTLE and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

This case presents the question whether a Trustee in Bankruptcy seeking pursuant to Section 70, sub. e¹ to set aside transfers in fraud of creditors under Florida state laws is foreclosed by res judicata by reason of a prior state court judgment² brought by a judgment creditor against the Bankrupt and those participating in the suspected transfers. The District Court on the basis of the Trustee's complaint and the record³ of the State Court proceeding entered summary judgment in favor of the defendants and against the Trustee.

The Trustee's federal court complaint can be quickly capsulated. The Bankrupt is the Florida Carolina Lumber Company, a corporation. The individual defendants, Alcock, Davis and Hood were officers and directors of Florida Carolina. They were also officers and directors of Southern Creosoted Lumber Company, a corporation, claimed to be a wholly owned subsidiary of the Bankrupt Florida Carolina. On June 28, 1956, while Florida Carolina was insolvent,⁴ the three individuals, Alcock, Davis and Hood, as officers of Southern Creosoted executed a mortgage on all of the assets of Southern Creosoted to secure the obligations of Florida Carolina (the Bankrupt) to the three defendant Miami banks. At the same time these individuals executed a voting trust transferring all voting rights of Southern Creosoted to the defendant voting-liquidating Trustees. These transfers were made without consideration to Florida Carolina for the purpose and with the intent of giving preference to the individual officers and stockholders who were endorsers on the corporation's notes. The receipt, appropriation and application of moneys and properties belonging to Southern Creosoted in partial liquidation of the obligations of Florida Carolina and its officers to the defendant Banks to the exclusion of other creditors violated Section 608.55, Florida Statutes, F.S.A., prohibiting transfers of corporate assets after or in contemplation of insolvency.

The Trustees' complaint sought this relief: (a) the stock of Southern Creosoted be declared to be property of the Bankrupt and surrendered; (2) the voting trust be set aside, (3) the mortgage given the Banks on Southern Creosoted's property be set aside, and (4) the assignment of the stock to one of the Banks (Miami Beach) be set aside.

The state court proceedings held to be res judicata can likewise be swiftly summarized. Central Bank and Trust Company, the holder of an unsatisfied common law judgment against Florida Carolina (and Davis and his wife as guarantors), filed in the Florida state court a bill in equity contending that the transactions between Florida Carolina, Southern Creosoted and the three individual owners of all of the stock in each of the two corporations constituted a fraud against its right as a creditor. "The complaint prayed that all of the voting trust agreements be set aside, that Southern Creosoted be declared a wholly owned subsidiary of Florida Carolina and that the assets of these corporations be made available at least pro tanto to the liquidation of Central Bank and Trust Company judgment." Central Bank & Trust Co. v. Davis, supra, 102 So.2d at page 602.

The defendants moved for summary judgment supporting their motions with various depositions and affidavits. "The sum of the depositions and affidavits was simply that Southern Creosoted was a perfectly solvent corporation, that it was not a wholly owned subsidiary of Florida Carolina, that the voting trust agreements were made in good faith * * *." Central Bank & Trust Co. v. Davis, supra, 102 So.2d at page 602. Central Bank and Trust Company filed no counter affidavits whatsoever and relied wholly on its verified complaint to establish a genuine factual issue.

The Supreme Court of Florida affirmed summary judgment in favor of the defendants and against the judgment creditor. On the merits it held the transfers were not fraudulent under Section 726.01, F.S.A. or prohibited under Section 608.55 (formerly Section 612.45) covering transfer of assets by a corporation after or in contemplation of insolvency.

The Court also held that there was no showing whatsoever — and hence no genuine issue preventing summary judgment — that Southern Creosoted was owned or controlled by Florida Carolina. This conclusion was based on two grounds, both procedural. The first, indigenous to the Florida common law approach to pleadings, was that since the complaint showed on its face that "all of the stock in Southern Creosoted was owned individually" the complaint "itself excluded the possibility of establishing this aspect to the judgment creditor's position."⁵ The second was that while for summary judgment a verified pleading may serve as a counter affidavit to create an issue of fact, the facts in the pleadings have to be in the form satisfying Rule 1.36(e), Florida Rules of Civil Procedure, 30 F.S.A. This the Court states, requires "that the affidavit be made on personal knowledge and shall set forth facts admissible in evidence and shall show affirmatively that the affiant is competent to testify to the matter stated in the affidavit."⁶

To escape the threat of res judicata, the Trustee makes much of two things to distinguish his case from the prior litigation. First, that in the federal court suit mention is made only of Section 608.55, F.S.A., and not 726.01. Second, that his complaint categorically charges that Southern Creosoted is a wholly owned subsidiary of Florida Carolina, an assertion which the Florida Supreme Court merely declared had not been proved. We regard these as not too important. For if, as appellees contend and the District Court held, the prior judgment was binding because the Trustee was in privity with the Bankrupt (Florida Carolina), a defendant in the state court proceeding, the normal rule would be applicable to foreclose not only matters which were, but those which might have been, litigated. Restatement, Judgment §§ 47, 48, 68 Comment a (1942). And if looked upon as collateral estoppel, the status of Southern Creosoted was actually presented and determined adversely since the opinion shows that the Florida Supreme Court regarded that both Sections 726.01 and 608.55 were involved.

But disregarding these suggested distinctions as unimportant, we are of the view that the Trustee is not bound, either on res judicata or judicial collateral estoppel, by the prior state court proceedings. The Trustee is, of course, a successor of the Bankrupt for many purposes. But he is much more both in the extraordinary rights with which the Bankruptcy Act invests him, and as a general respresentative of the creditors. Unless he intervenes and takes on the role of an active litigant subjecting himself thereby to the usual incidents of such action,⁷ he is not bound by the judgment merely because the Bankrupt was a party defendant in the prior litigation. Only in a limited situation will the Trustee be foreclosed. This will not include a mere in personam proceeding for if, as we have said in Rhodes v. Elliston, 5 Cir., 1928, 29 F.2d 737, 738, "The judgment was a personal one against the bankrupt," then, "it was not binding on the bankrupt estate, because the trustee was not made a party defendant." 1 Collier, Bankruptcy 1171-73 (14th Ed. 1956). Only if it is the Bankrupt's property as such does the judgment operate as a bar. "* * * If the bankrupt's property is involved the trustee will be bound by the judgment to the same extent as any other person who succeeds to an interest in property pending litigation." 1 Collier, supra at 1170. The question of title or ownership of property must be presented and to be binding the prior proceedings must have been in rem or quasi in rem. See Clark v. Mutual Lumber Co., 5 Cir., 1953, 206 F.2d 643; Stark v. Baltimore Soda Fountain Mfg. Co., D.C.Md.1952, 101 F.Supp. 842, 845; Detroit Trust Co. v. Schantz, D.C.E.D.Mich.1926, 14 F.2d 225; cf. First National Bank v. Lake, 4 Cir., 1952, 199 F.2d 524, certiorari denied, 1953, 344 U.S. 914, 73 S.Ct. 337, 97 L.Ed. 705.

The fact that the Trustee did not intervene is of no real moment.⁸ If it is a suit involving title to property, the Trustee is bound whether he intervenes or not. Theoretically it might be thought that this suggests that the Trustee had a duty to intervene. But the consequence flows from the nature of the proceeding (in rem or quasi in rem), not the failure of the Trustee to take action. Linstroth Wagon Co. v. Ballew, 5 Cir., 1907, 149 F. 960, 8 L.R.A.,N.S., 1204; In re Goetz, D.C.Ariz.1923, 289 F. 118; In re Winter, D.C.E.D.Mich.1927, 17 F.2d 153. See 1 Collier, supra at 1166, 1170. If, as we hold, the Trustee is not in privity with the Bankrupt, he certainly was not with respect to the judgment creditor, Central Bank and Trust Company. Hall v. Main, D.C.Ill.1929, 34 F.2d 528, affirmed Main v. Hall, 7 Cir., 1930, 41 F.2d 715. See 1 Collier, supra 1170.

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