Duda v. Sterling Mfg. Co.

• Decision Date: 11 January 1950
• Docket Number: No. 13976,13979.,13976
• Citation: 14 ALR 2d 899,178 F.2d 428
• Parties: DUDA v. STERLING MFG. CO. et al. STERLING MFG. CO. et al. v. DUDA.
• Court: U.S. Court of Appeals — Eighth Circuit

14 ALR 2d 899, 178 F.2d 428 (1949)

DUDA v. STERLING MFG. CO. et al. STERLING MFG. CO. et al. v. DUDA.

Nos. 13976, 13979.

United States Court of Appeals Eighth Circuit.

November 25, 1949.

Rehearing Denied January 11, 1950.

Bernard E. Vinardi, Omaha, Neb. (William Ritchie, Omaha, Neb., was with him on the brief), for Sterling Mfg. Co., Debtor, and others.

Jack W. Marer, Omaha, Neb. (Norman Denenberg, Omaha, Neb., was with him on the brief), for Walter Duda.

Before SANBORN, JOHNSEN, and RIDDICK, Circuit Judges.

RIDDICK, Circuit Judge.

The question on these appeals concerns the jurisdiction of a bankruptcy court in reorganization proceedings under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., over claims asserted by the reorganization trustees against an alleged debtor or of the corporation in reorganization. The appellees in No. 13,976 and appellants in No. 13,979 are the trustees appointed by the court in the reorganization proceedings of Sterling Manufacturing Company of Omaha, Nebraska, whose petition for reorganization was approved on April 6, 1948. The appellant in No. 13,976 and appellee in No. 13,979 is Walter Duda, a resident of Omaha, Nebraska, the alleged debtor of the corporation.

These proceedings began with the petition of the trustees of the debtor corporation for an order directed to Duda requiring him to show cause why judgment should not be entered against him in favor of the trustees on several separate and distinct causes of action. The first and most important and the one which gave rise to all others is an action on contract for value of goods and merchandise sold and delivered to Duda by the debtor corporation on January 15, 1948, for the recovery of rent due for premises leased and delivered by the debtor corporation to Duda under the same contract, and for the value of the good will of the debtor corporation's truck refrigeration business for which the goods sold and premises leased had been acquired and held; the second, an action for the proceeds of a check alleged to be the property of the debtor corporation received by Duda before the beginning of the reorganization proceedings and thereafter withheld by him; the third, an action for goods and merchandise of the debtor corporation delivered to Duda on January 15, 1948, under an alleged agreement to pay the debtor corporation the reasonable value therefor or to return the part not used; the fourth, an action to recover the value of services rendered and transfers made to Duda by the debtor corporation during the reorganization proceedings, for the payment of payrolls for Duda's employees, for the value of supplies shipped to Duda, and for commissions to his salesmen.

The order to show cause issued as prayed on the day the petition was filed. In response, Duda appeared specially, objecting to the jurisdiction of the reorganization court and moving that the petition be dismissed and the order to show cause quashed for want of jurisdiction. He attacked the summary jurisdiction of the bankruptcy court on the ground that the petition showed on its face that the petitioners were attempting to enforce an alleged chose in action for the value of goods and merchandise sold under contract by the debtor before reorganization, or for the recovery of property held under a bona fide and substantial claim adverse to the debtor corporation. He attacked the plenary jurisdiction of the court because of the absence of diversity of citizenship between the parties, and asserted that substantial issues of fact would arise in the controversy on which he was entitled to a trial by jury. Attached to these pleadings was Duda's affidavit denying generally each and every allegation of the petition, and specifically denying that Duda was a party to any of the contracts or transactions with the debtor or its trustees set out in the petition. After hearing some of the evidence on behalf of the trustees, all of which was in complete conformity with the allegations of the petition, the court overruled Duda's objections to its jurisdiction, and gave him time to answer, which he did, without prejudice to his objections to the court's jurisdiction and his motion to dismiss the proceedings.

In his answer Duda again denied the allegations of the petition. He alleged that the sales and other transfers and the lease set up in the petition were made by the debtor to one Frank Schaaf, and that all deliveries of property and payments of money set out in the petition were made by the debtor or its trustees to Frank Schaaf upon the agreement between them that Frank Schaaf would operate that part of the business of the debtor involved in the transaction under the name of the Sterling Refrigeration Engineering Company, would pay to the debtor the agreed rent for the premises leased, and, for the materials sold and delivered to him, their cost price to the debtor or the market price whichever was lower, payments to be made by Schaaf as and when the materials sold and delivered were used in the operation of the business comtemplated, which was the manufacture of refrigeration equipment for motor trucks. Duda denied that he was the owner of the Sterling Refrigeration Engineering Company, or that he had any interest in it. He alleged that the transaction between the debtor and Frank Schaaf was made upon the representation of the debtor that the materials and supplies sold and delivered to Schaaf were sufficient for the assembling of 30 complete and efficient refrigeration units, that after delivery of the materials to Schaaf it was discovered that they were not sufficient to assemble the agreed or any number of refrigeration units, that many of the materials and supplies were mechanically deficient in numerous respects; that as a result of these defects in the materials Schaaf was put to great expense in repairing the refrigeration units which he had assembled in reliance upon the representations of the debtor and in acquiring necessary parts for the manufacture of other refrigeration units and for repairing those assembled from defective parts; that after the institution of the reorganization proceedings for the debtor, as the result of this situation, negotiations were had between the trustees and Schaaf in which it was agreed that the fair value of the materials delivered under the contract of January 15, 1948, was $20,000, which Schaaf agreed to pay to the debtor, subject to certain obligations owing from the debtor to the Sterling Refrigeration Engineering Company for work done and services performed and expenses incurred at the instance and request of the trustees.

With reference to the proceeds of the check for which judgment was asked in the petition, Duda alleged that the check was drawn payable to the Sterling Refrigeration Engineering Company in payment of an account owed to that company by one of its customers and that the proceeds were never the property of the debtor. The answer also denied that the debtor ever offered to sell to Frank Schaaf or to Duda the good will of the debtor's refrigeration business, and that the good will of that business was never purchased by either of them. In the alternative, Duda asserted that, in the event the court should find him indebted in any amount to the debtor, he was entitled to setoff against any judgment awarded against him any and all sums due the Sterling Refrigeration Engineering Company as set out in the answer. The items involved in the setoff as alleged in Duda's answer were work and labor of the value of $3,782.05 done by the Sterling Refrigeration Engineering Company at the request of the debtor and its trustees on a refrigeration unit sold by the debtor prior to January 15, 1948; work and labor of the value of $1,414 furnished by the Sterling Refrigeration Engineering Company at the request of the trustees in the manufacture of a compressor; and expenses of $331 incurred by the Sterling Refrigeration Engineering Company at the request of the debtor in connection with repair of a defective refrigeration unit sold by the debtor prior to the reorganization proceedings.

In reply the trustees admitted that the Sterling Refrigeration Engineering Company had performed the work and labor of the value of $3,782.05 as alleged in the answer, but asserted that in doing this work the Sterling Refrigeration Engineering Company kept parts taken from the refrigeration unit on which the work was done of a value unknown to the trustees but for which they were entitled to credit. Concerning the setoff claimed in the amount of $1,414, the trustees replied that they had no knowledge of the facts, but that if the work was done as alleged in the answer it was not performed at the request or under the authority of the trustees. They made no denial of the claim for $331.

A complete trial of the issues raised by the pleadings before the court without a jury resulted in a judgment against Duda for the full amount of the claims set out in the petition, except for the value of the good will of the debtor's refrigeration business, concerning which the court found that the evidence was not sufficient "to justify entering judgment thereon against Walter Duda."

The amount of the judgment awarded the trustees was $47,588.20, which included $39,482.53 with interest from January 15, 1948, to March 23, 1949, for the value of the goods and merchandise sold and delivered by the debtor before the institution of the reorganization proceedings; $1,730 with interest for the same period representing the proceeds of the check in dispute between the parties; $324.21 with interest for the same period representing the value of property retained by the transferee under the alleged agreement of January 15, 1948, to pay for such part of the materials delivered under that agreement as was used by the transferee; and $3,020.50 with interest from various dates to March 23, 1949, representing the value of services rendered and payments alleged...