Hunter Press, Inc. v. Connecticut Bank & Trust Co., No. H-74-528.

• Court: United States District Courts. 2nd Circuit. United States District Court (Connecticut)
• Writing for the Court: Stanford N. Goldman, Jr., Schatz & Schatz, Hartford, Conn., for appellant
• Citation: 420 F. Supp. 338
• Parties: In the Matter of Hunter Press, Incorporated. HUNTER PRESS, INCORPORATED, Appellee, v. CONNECTICUT BANK AND TRUST COMPANY, Appellant.
• Docket Number: No. H-74-528.
• Decision Date: 22 September 1976

420 F. Supp. 338

In the Matter of Hunter Press, Incorporated.
HUNTER PRESS, INCORPORATED, Appellee,
v.
CONNECTICUT BANK AND TRUST COMPANY, Appellant.

No. H-74-528.

United States District Court, D. Connecticut.

September 22, 1976.

420 F. Supp. 339

Jon D. Schneider, Goodwin, Procter & Hoar, Boston, Mass., for appellee.

Stanford N. Goldman, Jr., Schatz & Schatz, Hartford, Conn., for appellant.

MEMORANDUM OF DECISION

BLUMENFELD, District Judge.

This case is here on appeal from an order of the Bankruptcy Court, Seidman, J., declaring invalid the July 18, 1974 attachment by appellant Connecticut Bank and Trust Company ("CBT") of real property owned by Hunter Press Incorporated ("Hunter Press"). Following the attachment, on August 14, 1974, three creditors filed an involuntary bankruptcy petition against Hunter Press in United States District Court. In November 1974, on petition by Hunter Press, the proceedings were converted to

420 F. Supp. 340

Chapter XI. The Bankruptcy Court declared the attachment void under § 67a(1)(a) of the Bankruptcy Act as a lien obtained within four months of filing while the debtor was insolvent.¹ Both sides concede that the attachment occurred within the statutory four month period. Appellant, however, sharply disputes the Bankruptcy Judge's determination that Hunter Press was insolvent on July 18, 1974

Bankruptcy Rule 810 dictates that this court must accept the Bankruptcy Judge's findings of fact unless they were "clearly erroneous," but can otherwise affirm, modify, reverse or remand his judgment. In re Securities Investor Protection Corp., 414 F.Supp. 679 (D.Minn.1975).

Factual Background

In July 1973, Hunter Press, a printing firm, was taken over by new management who obtained a line of credit from James Talcott, Inc. ("Talcott"). Talcott in return received a security interest in all of Hunter Press's inventory, accounts receivable, other personal property, and certain of its real estate. Hunter Press in April 1974 executed an unsecured 90-day promissory note for $85,000 with CBT. When Hunter Press could not repay the note, CBT attached the real property. Talcott immediately took possession of the business, completed work in progress, collected accounts receivable, and liquidated the personal property. As a result of this liquidation by public auction on October 8, 1974, Talcott realized a gross total of $272,106.65. After deduction of expenses of $77,106.65 and the secured debt owed to it, $168,500, Talcott turned over $26,500 to the Bankruptcy Court. The debtor's real estate was sold at public auction on November 19, 1975 for $200,000, with auction expenses of $5,000. The buyer assumed a tax debt of $50,000 due on the property.

The Bankruptcy Court valued Hunter Press's assets as of July 18, 1974, the date of attachment, at $440,000:

$195,000 in personal property ($272,106.65 less
                 expenses of $77,106.65)
                 245,000 in real property ($200,000 plus
                 $50,000 in taxes assumed by buyer
                 less $5,000 auction expenses)
                _________
                $440,000
                

In finding Hunter Press was insolvent, the court concluded the debtor's liabilities were $561,500. The parties had stipulated $511,500 of said liabilities. To that sum, Judge Seidman added $50,000 as an approximation of real estate taxes due the city of Hartford, which had accrued on the real property between the time of attachment and the auction sale in November 1975.

Appellant CBT argues that the Bankruptcy Court incorrectly determined the value of Hunter Press's assets and liabilities. First, CBT maintains that the fair value of the personal property was the gross amount received at auction, $272,106.65, with no deduction for costs and expenses. Secondly, appellant claims the court erred in valuing the real property at the net price (adjusted for costs and the assumption of taxes) obtained at an auction conducted over a year after the date of attachment. Rather, CBT advances several appraised values for the property, the lowest of which is $300,000. Finally, CBT contends that it was error to go beyond the stipulated $511,500 of liabilities by adding $50,000 in real estate taxes that accrued after the date of attachment. If all three of appellant's claims are accepted, Hunter Press's assets would total $572,106.65 and exceed its liabilities by $60,606.65.

Personal Property

In assessing the value of Hunter Press's personal property the Bankruptcy Court

420 F. Supp. 341

used the net price received at auction after deducting auctioneer's commissions, attorneys' fees and other costs. Appellant argues that the value of the personal property as of the date of attachment was equal to at least the gross amount realized at auction without deduction for costs. Surprisingly, neither the statute nor the cases directly resolve the question whether the costs of sale should be considered in determining the fair value of assets for purposes of the Bankruptcy Act

Insolvency under the bankruptcy laws is determined by the so-called "Balance Sheet" rule.² Section 1(19) of the statute provides that a person shall be deemed insolvent whenever "the aggregate of his property . . . shall not at a fair valuation be sufficient in amount to pay his debts."³ Fair valuation according to Collier "signifies the reasonable estimate of what can be realized from the assets by converting them into, or reducing them to, cash under carefully guarded, if not idealized, conditions." 1 Collier on Bankruptcy, ¶ 1.19 at 121 (14th ed. 1974). It is clear from the cases that a distressed or forced sale price is not the proper standard. Syracuse Engineering Co. v. Haight, 110 F.2d 468, 471 (2d Cir. 1940); Stern v. Paper, 183 F. 228, 231 (D.N.D.1910), aff'd, 198 F. 642 (8th Cir. 1912); Darby v. Shawnee Southwest, Inc., 399 F.Supp. 587, 591 (W.D.Okl. 1975). In the leading case of Syracuse Engineering Co., 110 F.2d at 471, Judge Clark commented:

"Fair valuation of an estate such as this might conceivably be based on forced sale prices, or on fair market prices, or on so-called intrinsic values, irrespective of sale. A proper regard for the interests of the bankrupt, as well as for the interests of his creditors, compels the conclusion that fair market price is the most equitable standard. . . . It involves a value that can be made available for payment of debts within a reasonable period of time. . . . And fair market value implies not only a `willing buyer', but a `willing seller.'"

In determining what such a willing buyer might pay a willing seller, I conclude that one should not take into account the auction costs of selling the property. The balance sheet approach calls upon the court to compare the value of the assets and the amount of liabilities of the bankrupt at the time of the attachment. The value of these assets is, according to...