Goldie v. Cox

• Decision Date: 08 September 1942
• Docket Number: No. 12004.,12004.
• Citation: 130 F.2d 695
• Parties: GOLDIE v. COX.
• Court: U.S. Court of Appeals — Eighth Circuit

130 F.2d 695 (1942)

GOLDIE v. COX.

No. 12004.

Circuit Court of Appeals, Eighth Circuit.

September 8, 1942.

COPYRIGHT MATERIAL OMITTED

Seth Lundquist, of Minneapolis, Minn. (D. J. Shama, of Minneapolis, Minn., on the brief), for appellant.

Benedict Deinard, of Minneapolis, Minn. (Oscar A. Brecke, of Minneapolis, Minn., on the brief), for appellee.

Before STONE, WOODROUGH, and JOHNSEN, Circuit Judges.

STONE, Circuit Judge.

Appellant filed two amended general claims (Nos. 184 and 185) in the bankruptcy proceeding of the Calhoun Beach Club Holding Company. After full hearing, the referee denied both entirely. On review, the trial court affirmed the referee except as to one item in claim No. 184, being for $8,000.00 based on eight $1,000.00 bonds issued by bankrupt and pledged by Mr. Goldie as collateral to a note purchased by C. R. Shefveland. From this order of affirmance, Mr. Goldie appeals. Three corporations will be, for brevity, referred to as follows: The Calhoun Beach Club Holding Company as the bankrupt, the Calhoun Beach Holding Company as the Holding Company, and the Calhoun Beach Club as the Club.

Claim No. 184 is for claimed advancements to the bankrupt and is evidenced by 183 checks, from October 19, 1926, to July 17, 1933. These checks are in various sums and amount to $20,378.48 plus interest thereon. Claim No. 185 was for claimed advancements to the bankrupt represented by 32 notes, dated from November 20, 1926, to November 15, 1928, in a total of $20,212.84 plus interest thereon.

The report of the referee states: "In view of the fact that the books of the bankrupt are reasonably complete for the period up to December 31, 1928, and there are no books thereafter, the court for convenience will consider these claims in two periods:

A. The period from October 9, 1926 to December 31, 1928.

B. The period after January 1, 1929.

A. The first period includes all of the 32 items of claim No. 185, aggregating $20,212.84, and the first 37 items of claim No. 184, aggregating $15,140.49, as they are listed on tabulations introduced in evidence as Goldie Claim 185 Exh. 1, and Goldie Claim 184, Exh. A., or a total of $35,353.33. All of the items of claim No. 185 are reflected on the journal and ledger of the bankrupt; of the 37 items of claim No. 184, all except items 1, 2, 4 to 9, 17 to 19, 28, 31 and 36, are credited to Goldie on the ledger.

B. The second period includes items 38 to 183 of claim No. 184, aggregating $4859.51. None of these items are reflected on the books of the bankrupt produced."

As to Period A, the referee concluded, from showing of the account books of the bankrupt, that Mr. Goldie was entitled to a credit, as "shown on the ledger account," for net amount of advances to December 31, 1928, of $25,637.84; and must be charged with a debit, "shown on the ledger account," of $25,525.08 — leaving a net credit due him of $156.76. This disposed of all the items on claim No. 185 and of items 1 to 37 on claim No. 184. This left items 38 to 183 of claim 184, which fell in the above period B.¹

As to Period B, there were the above 146 items (38 to 183) which amounted to $4859.51. The referee found that the claimant "has failed to establish by any satisfactory evidence that said payments were made at the request of the bankrupt, or for its use or benefit, and has failed to produce any account books reflecting such payments and has failed to disclose any payments which he may have received from the bankrupt during that period or any charges against him during that period.

Goldie, being the president and managing officer of the bankrupt, occupied a fiduciary relation to it, and any claim presented by him against the bankrupt estate must be subjected to close and rigid scrutiny, and to be allowed, must be satisfactorily established by the proof. Such serious doubt exists as to the propriety of any of said items that the court feels constrained to disallow them."

In addition to the above claims for advancements, there was an item of $300.00 for "services", at $20.00 per day for 15 days between July 18, 1932, and October 12, 1932. As to such, the referee found that no evidence was offered to support this item; and, "in addition", that payment of salaries to any officer or director, except from "net profits arising from the operations of said Club property under said operating agreement" was a condition for issuance of a license (by the Securities Commission of Minnesota) to sell stock of the bankrupt and a written waiver to that effect and for that purpose was executed by claimant and there had never been any such "net profits."

The net result of the above findings of the referee is that there was due claimant $156.76 on claim 184 and nothing on claim 185. These findings were based upon what we may designate as the mathematical phase of the problem, that is, what the referee deemed the evidence to show as to the existence of advancements by and as to opposing debit items against the claimant — in short, whether the bankrupt was in fact indebted to claimant, and, if so, in what amount. However, the findings of the referee did not stop with these mathematics.

He considered other issues and found: that all advancements in these claims should be treated as capital contributions to the bankrupt and not as loans to be repaid; that any amount due on these claims should be subordinated to the claims (27 claims for $29,500.00) of holders of bonds which were personally guaranteed by Mr. Goldie; that this claimant joined with others in false and fraudulent transactions "with an intent to enforce groundless claims and thereby deceive and defraud stockholders and creditors of the above estate" to their damage and, therefore "is now estopped from asserting any claim against the above estate, and from attempting to share with the good faith creditors of the above estate in the distribution thereof."; that an assignment of the subject matter of these claims to L. M. Shapiro (or to a partnership made up of him and his brother Sam Shapiro) was ineffective because the debt for which the assignment was made had been paid; and, that an item in claim 184 for $8,000.00, represented by bonds of the bankrupt pledged as collateral to a note owned by C. R. Shefveland, was not allowable.²

In his certificate, the referee stated the questions presented for review were:

"(1) Whether said unsecured claims, if allowed in any amount, should be postponed and subordinated to the rights of creditors holding `A' Bonds of the bankrupt guaranteed by Goldie.

"(2) Whether Goldie was guilty of actual bad faith and breach of duty whereby the good faith creditors of the above estate were deceived, whereby he is now estopped from asserting any claims against the above estate.

"(3) Whether the bankrupt was in fact indebted to Goldie, and if so in what amount.

"(4) Whether the advances made by Goldie for the bankrupt should be treated as capital contributions to the bankrupt or as loans.

"(5) Whether Goldie performed any services for the bankrupt in 1932 for which he is entitled to compensation.

"(6) Whether C. R. Shefveland, as subrogee of Goldie, is entitled to the allowance of a claim upon $8,000 of `B' bonds of the bankrupt included in Goldie's claim No. 184.

"(7) Whether in the event Goldie has a claim, L. M. Shapiro, or Hennepin Transfer Company or Hennepin Transportation Company, Inc., is the assignee thereof."

The certificate states the evidence as to each of these seriatim.

We take up now the particular matters urged here by appellant. Logically, we consider first those points which, if determined against appellant, would completely or largely dispose of the claims in their entirety. There are three points of this character: (1) this point concerns the finding that claimant was guilty of actual bad faith and breach of duty whereby good faith creditors were deceived and because of which he is estopped from asserting any claims against the estate — if this be determined adversely to claimant, both claims fail entirely; (2) this point concerns the finding that the advancements should be treated as capital contributions and not as loans — if this be determined adversely to appellant, all items therefor in the claims fail but the claim item for services is not concluded thereby; (3) this point is concerned with the claim item for services.

(1) The Fraud Point.

This point hinges on the existence or not of bad faith or breach of duty by claimant to the prejudice of creditors and stockholders of the bankrupt. By such bad faith or breach of duty is meant such conduct as would make it inequitable for claimant to have his claims allowed or, if allowed, to have them share, in distribution of the estate, on equality with other unsecured creditor claims. Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281. Determination here required consideration of certain legal principles and then the application of those principles to the fact situation.

The legal principles are stated by Mr. Justice Douglas in Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281. Those principles are: that disallowance or subordination of a claim is determined "in light of equitable considerations" (308 U.S. page 305, 60 S.Ct. page 244); that this applies to claims by an officer, director or stockholder of a bankrupt corporation (308 U.S. pages 306, 307, 60 S.Ct. 238, 84 L.Ed. 281); that, because such officer or director is a fiduciary, their dealings with the bankrupt "are subjected to rigorous scrutiny" and the burden is on them "not only to prove the good faith of the transaction but also to show its inherent fairness from the viewpoint of the corporation and those interested therein" — the test being "whether or not under all the circumstances the transaction carries the earmarks of an arm's length bargain" (308 U.S. page 306, 60 S.Ct. page 245); that it is the duty of the bankruptcy court "to sift the circumstances surrounding any...