In re Atlas Sewing Centers, Inc.

• Decision Date: 15 January 1971
• Docket Number: No. 25525.,25525.
• Citation: 437 F.2d 607
• Parties: In the Matter of ATLAS SEWING CENTERS, INC., Debtor. UNITED STATES of America, Appellant, v. JONES FINANCIAL CORPORATION, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

437 F.2d 607 (1971)

In the Matter of ATLAS SEWING CENTERS, INC., Debtor UNITED STATES of America, Appellant, v. JONES FINANCIAL CORPORATION, Appellee.

No. 25525.

United States Court of Appeals, Fifth Circuit.

January 15, 1971.

Lavinia L. Redd, Asst. U. S. Atty., Miami, Fla., Johnnie M. Walters, Asst. Atty. Gen., Meyer Rothwacks, Atty., Dept. of Justice, Tax Div., Washington, D. C., for appellant.

Harold M. Hoffman, New York City, Harry L. Durant, Miami, Fla., Jack M. Gordon, New Orleans, La., for appellee.

J. Charles Burden, Jr., Alexandria, La., Walter H. Beckham, Jr., Miami, Fla., for interested parties.

Before JOHN R. BROWN, Chief Judge, and GOLDBERG and AINSWORTH, Circuit Judges.

JOHN R. BROWN, Chief Judge:

As a last tag end before us in an almost endless proceeding, cf. Bros., Inc. v. W. E. Grace Mfg. Co., 5 Cir., 1965, 351 F.2d 208, cert. denied, 1966, 383 U. S. 936, 86 S.Ct. 1065, 15 L.Ed.2d 852, we deal with the Government's appeal almost four years after the entry of the real orders directing distribution to Jones¹ of the amounts previously set aside to it by the District Court's decrees in the complex Chapter X proceedings of Atlas Sewing Centers, Inc., Debtor. We hold the Government is precluded in its appeal by res judicata, but believing that every seam should be caulked, every sail reefed, every line secured and every anchor set to windward, we reach a like result on the merits or, perhaps more accurately, the lack of merits. The result is that we affirm² the District Court's action.

We would at the outset sound the caveat that this opinion is not written that those who run may read. On the contrary it is constructed against our prior decisions,³ one of which is so detailed that no repetition is needed. All who read — reviewing Court, parties, counsel, scholars and ubiquitous law review case note editors — must simultaneously scan these prior opinions to round out the picture.

Specifically at issue is the correctness of the last order directing the disbursement to Jones of the funds deposited in the Registry in 1964 representing, up to the amount of the deposit, principal, interest and attorneys fees on the indebtedness of Atlas to Jones under the 1961 financing agreement which the Special Master had held, and which we had affirmed to be, a valid secured claim.

The beginning, development and end may be quickly capsulated. Under the December 1961 agreement by which Jones provided extensive financing for handling installment credit sales of sewing machines, each advance under an arrangement satisfying the Florida nonnotification accounts receivable financing structure⁴ was secured by pledge of collectible installment sales contracts of an agreed percentage (200 to 286%) of the outstanding advances (Op 2:68). After the commencement of Chapter X proceedings in June 1962, Atlas was in need of additional financing to maintain current operations and as a Debtor seeking reorganization as a continuing concern, (Op 2:68). Jones agreed to supply this but in effect only on the two conditions that the reorganization Court would formally (1) validate the 1961 agreement and (2) approve the new August 1962 agreement covering post-petition advances.⁵ This was done by the order of August 20, 1962 (Op 2:68).

By these approved contracts the Debtor (and Trustee) were required to deposit collections from contracts pledged in separate bank accounts for application on the Jones debt exclusively and repossessions were to be handled similarly (Op 2:68). The Trustees' persistent failure and refusal to honor these requirements led to a series of appeals to this Court, the entry by this Court of a number of orders specifically compelling the segregation of the collected proceeds and repossessions for the benefit of Jones, the initiation by this Court of civil and criminal contempt proceedings against the Trustee for violation of our orders, reference by us of the civil contempt proceeding to then Chief Judge, now Circuit Judge, Dyer and the entry of orders by us confirming the findings of violation by the Trustee respecting specifically the 1961 agreement. Op 2:68, 69, 70, 71, 72, 73; Op 1:42, 44. In his initial report Judge Dyer as Special Master held "that the Trustee had violated one of the provisions of our order of October 11, 1963 in that the Trustee had failed to segregate the proceeds of sales of collateral under the December 4, 1961 financing agreement" (Op 2:69). "On August 3, 1964 this Court approved Judge Dyer's findings of March 11 * * *" (Op 2:70).

In the meantime much was going on toward formal reorganization of the Debtor. An amended Plan was filed August 4, 1964 (Op 2:70) and by order of September 4, 1964 the District Court confirmed the Plan (Op 2:70). Although the Plan "fails to mention Jones as a secured creditor under the * * * financing agreement of December 4, 1961" (Op 2:70) several things of decisive importance to the present problem were done. It fixed classes of creditors, notably Class 2, giving priority to the United States⁶ with secured claims being put in Class 6.⁷ Additionally the order confirming the Plan of September 4, 1964 (Op 2:70) made express provision for secured claims,⁸ and most important it established the procedure for determination by Special Master, now Judge, Mehrtens on Class 6 secured claims including the Jones 1961 agreement claim.⁹

Rounding out the picture for our purposes, proper notice was given to all parties including the Government,¹⁰ and optional procedures were established for payment to Jones of the balance due under the post-petition 1962 financing agreement claim (Op 2:70, 71).

When Burden, the Plan proposer, finally paid in the required $1,250,000 in December 1964, the Court on December 31, 1964 entered an "Order in Aid of Consummation of the Plan" (Op 2:71). Estimating the probable amounts due under the December 1961 financing agreement,¹¹ the Court ordered that approximately $500,000 be deposited in the Registry, of which $92,208.98 was for the 1961 agreement with allowance for estimated attorney fees, etc. The Court directed that this should be disbursed in accordance with the Court's subsequent order¹² and to make this doubly certain the order again provided for the funds to be disbursed in accordance with the finding on validity, amount and priority.¹³

By depositing in the Registry the sum for the December 1961 agreement and by withdrawing approximately $400,000. under the 1962 agreement, Jones surrendered all of the collateral held or claimed, repossessed machines and all funds in segregated accounts¹⁴ (Op 2:71, 72).

Following receipt of Judge Dyer's second report on March 4, 1965 this Court on March 12, 1965 ordered the Trustee to show cause why civil or criminal contempt proceedings should not be entered against the Trustee (and assistant) (Op 2:72). On July 1, 1965 the District Court entered its "Order of Substantial Consummation of the Plan" (Op 2:72).

Shortly thereafter, on October 8, 1965 came the report of Special Master Mehrtens which found that the December 1961 financing agreement was valid, fixed the sum due at $100,766.24¹⁵ and ordered the payment of all unpaid balances¹⁶ (Op 2:73).

On October 14, 1966 Chief Judge Fulton granted Jones' motion for confirmation of Judge Mehrten's report as Special Master (Op 2:75). The Trustee's appeal from this order was thereafter given No. 24449 and was one of the principal subjects of opinion 1 (Op 1:43, 44). Rejecting motions to dismiss the appeal as untimely or for want of an appealable order by "a per curiam opinion dated June 5, 1967, we finally disposed of * * * No. 24449 (Erwin Ray v. Jones)."¹⁷ Op 2:78. It bears emphasis that the Government never appealed the order of October 14, 1966 nor did it seek to enter the appeal in No. 24449 or seek any review of it after the entry of our Opinion 1.

As Opinion 1 reflects so positively, this Court upheld the District Judge's ruling in turn upholding the report of Special Master Mehrtens in all respects, and on the merits we affirmed the validity, priority and amount of the 1961 claim of Jones as a secured claim.

In the plainest of language we first had this to say, that "We reject the contention that the order of October 14, 1966 was not a final order. Nothing save the most mechanical of computations remained to be done." And then having determined to pass upon the merits we went on to say that "On the merits we have no doubt that there was an adequate foundation in fact and law for the conclusions reached by the Special Master and confirmed by the District Court * * *" (Op 1:43).

In assaying the question of res judicata the Government starts off its supplemental memorandum filed in response to the express request of this Court that it "is not questioning in this proceeding the validity, amount or priority of Jones' pre-petition December 4, 1961 agreement claim, and it recognizes that the various orders of the District Court bar any creditor, including the Government, from relitigating these matters." But within scarcely two pages this concession is virtually repudiated. Arguing that the adjudication in bankruptcy (discussed post) changes everything the Government makes this enigmatic contention: "thus, an important issue to be determined in the liquidating bankruptcy proceeding is whether Jones' pre-petition claim is to be treated as a secured or as a general and secured claim."¹⁸ Although the Government's position is fuzzy at best, it seems to try to avoid the impact of res judicata by two contentions. The first is that this is somehow independent litigation outside the confines of the Bankruptcy (or reorganization) Court between creditors concerning their relative rights to payment.¹⁹ For this they cite 1B Moore's Federal Practice (2nd Ed.1965) §§ 0.4051 and 0.40511, § 0.448, pages 621-623, 783-787, 4231-4233 and especially at 3075-3076. The second, whether separately or a part of this same thrust, seems to argue that while the...