In re California Associated Products Co.

• Decision Date: 12 August 1950
• Docket Number: No. 12309.,12309.
• Citation: 183 F.2d 946
• Parties: In re CALIFORNIA ASSOCIATED PRODUCTS CO. WIL-RUD CORPORATION v. LYNCH et al.
• Court: U.S. Court of Appeals — Ninth Circuit

183 F.2d 946 (1950)

In re CALIFORNIA ASSOCIATED PRODUCTS CO.

WIL-RUD CORPORATION v. LYNCH et al.

No. 12309.

United States Court of Appeals Ninth Circuit.

August 12, 1950.

Charles J. Katz, Los Angeles, Cal. (Samuel W. Blum, Los Angeles, Cal., of counsel), for appellant.

Craig, Weller & Laugharn, Los Angeles, Cal. (T. S. Tobin, Los Angeles, Cal., of counsel), for appellee Lynch.

Hugo A. Steinmeyer, John E. Walter and Robert H. Fabian, all of Los Angeles, Cal., for appellee Bank of America.

Aaron Levinson, Los Angeles, Cal., in pro per for appellee Levinson.

Maurice Mac Goodstein, Los Angeles, Cal., for appellee Leo Brill.

Overton, Selig & Wilson, Los Angeles, Cal., for appellee F. W. Boltz Corp.

Hugh Ward Lutz, Los Angeles, Cal., for appellee Kramer.

Before BIGGS and STEPHENS, Circuit Judges, and DRIVER, District Judge.

DRIVER, District Judge.

This is an appeal by Wil-Rud Corporation from an order of the District Court reversing on review an order of the referee approving a compromise of a controversy growing out of a receiver's sale in bankruptcy. The debtor, California Associated Products Company, a corporation, had petitioned for relief under Chapter XI of the Bankruptcy Act¹ but had failed to formulate a plan of arrangement acceptable to the creditors, and the referee on October 15, 1947 caused the debtor's assets, including the assets of its subsidiary corporation, Yankee Doodle Root Beer Bottling Company, to be sold at receiver's sale at public auction. The assets were sold to appellant, the highest bidder, for $161,000.

So far as the record shows there was no statement in any order of sale and no oral announcement prior to the sale as to the quantum of property to be sold.² Appellant's bid was stated to be on the same basis as that of a competing bidder whose highest offer for the "physical assets" of the debtor was $160,000. The referee's order confirming the sale dated October 22, 1947 described the property deemed to have been sold by the receiver as "all machinery, fixtures, equipment, all inventory, all lessee's improvements, all furnishings, all supplies and all finished and unfinished products located at debtor's plant in Los Angeles together with all the other physical assets of the debtor corporation, wheresoever situated, and together with all of the physical assets of the Yankee Doodle Root Beer Company, a corporation, as of October 15, 1947 at 5 o'clock p. m." By the terms of the order the property was sold, with an exception not material here, "free and clear of any liens, charges and encumbrances." The order also recited that the assets were to be delivered "upon the signing of the within order, and payment therefor to be made concurrently with delivery to the buyer."

Appellant took over the plant of the debtor, which was then being operated by the receiver, and paid part but not all of the purchase price. Thereafter the receiver caused appellant to be cited before the referee to show cause why the balance of the purchase price should not be paid, and at the hearing, on November 7, 1947 appellant claimed it had not received all of the assets of the debtor which, under the terms of the order of confirmation, were to be delivered to the purchaser concurrently with payment of the purchase price. Appellant contended that it had submitted its bid in reliance upon a written inventory of the goods of the debtor exhibited to its agent by a representative of the receiver about ten days before the sale and that a check of the goods turned over to the appellant after the sale, made by appellant and receiver, disclosed inventory shortages amounting in the aggregate to $18,952.16. Appellant asked for an adjustment of its bid price in accordance with such shortage. Appellant also maintained that it had not received "free and clear of any liens, charges and encumbrances" as specified in the order of confirmation, about 700,000 root beer bottles and 25,000 wood shells or bottle containers, carried in the inventory at a total figure of $47,926.29. These empty bottles and wooden containers for the most part were in the possession of customers who had made deposits thereon amounting to 60 cents a case of 24 bottles. After hearing the evidence as to the claimed inventory shortage (other than bottles and containers) the referee expressed the view that appellant's contention was meritorious but deferred formal action with the suggestion that opposing counsel endeavor to reach an agreement as to the facts with reference to the controversy over the empty bottles. No formal order was ever entered and on January 6, 1948 the receiver filed a petition for leave to compromise the entire controversy with appellant. The compromise recommended by the receiver was that appellant be allowed a credit of $18,500, thereby in effect, reducing the purchase price from $161,000 to $142,500, and that appellant undertake "to hold your petitioner receiver harmless on any claims for refunds on cases and/or bottles up to 60 cents per wooden case containing 24 bottles * * *." After an adversary hearing the referee made formal findings of fact, conclusions of law and an order approving the receiver's proposed compromise. Certain dissatisfied creditors petitioned for review and the District Court, without receiving any additional evidence, but solely upon the record made before the referee, reversed the referee's order. This appeal by Wil-Rud Corporation followed. The appellees are the creditors and the receiver.

At the outset we are faced with appellees' contention that the appeal should be dismissed for the reasons that the filing of the notice of appeal was not timely, that the appellant was not a party to the proceedings before the referee on receiver's petition to compromise, and that the appellant was not aggrieved by the District Court's order from which the appeal was taken.

The district court filed a written memorandum opinion which contained a statement that "the order of the Referee in approving the compromise is hereby reversed." A minute entry by the clerk of the filing of a memorandum opinion was made December 16, 1948. The court's formal findings of fact, conclusions of law and order reversing the order of the referee were filed and docketed May 24, 1949. The notice of appeal was filed June 20, 1949. Since no written notice was given to the aggrieved party of the entry of the order complained of, the appeal in the present case should have been taken within forty days from such entry.³ What, then, constituted the entry of the order?

In Rosenberg v. Heffron, 131 F.2d 80, this Court held, in a situation similar to that of the case at bar, that in bankruptcy proceedings the notation of the order in the clerk's docket constitutes the entry of the order. Under General Order 37, 11 U.S. C.A. following section 53, as amended, the Rules of Civil Procedure not inconsistent with the Bankruptcy Act or with the General Orders are applicable in bankruptcy proceedings. Rule 58, 28 U.S.C.A., which is not inconsistent and therefore applicable here, specifies that the notation of a judgment in the civil docket as provided by Rule 79(a) constitutes the entry of the judgment.⁴ The memorandum opinion, aside from the question whether it constituted a definitive, appealable order at all, was not noted in the clerk's docket and the order of the District Court reversing the order of the referee was not, therefore, entered until the docketing of the formal findings and order on May 24, 1949. The appeal taken within forty days after that date was in time.

As to appellees' contention that appellant was not a party before the referee it should be remembered that the controversy which ultimately led to the appeal grew out of a receiver's sale in bankruptcy at which appellant was the successful bidder and the purchaser. A purchaser at such a judicial sale thereby becomes a party to the proceedings as to questions thereafter arising affecting his bid and he may appeal from an order by which he is aggrieved.⁵ In the present case appellant as the purchaser at the receiver's sale was cited to appear and did appear before the referee in response to an order to show cause why it should not be required to pay the full amount of its bid. From that point on, at every stage, the proceedings directly and vitally affected appellant's interests. The effect of the District Court's order was to require appellant to pay $18,500 more than it would be required to pay under the order of the referee. We think that appellant was a party to the proceedings before the referee, that it was aggrieved by the order of the District Court, and that it is entitled to prosecute the appeal.

Passing now to the merits, the Bankruptcy Act, § 27, 11 U.S.C.A. § 50, authorizes a receiver or trustee, with the approval of the court, to compromise any controversy arising in the administration of the estate upon such terms as he may deem appropriate. The power to compromise is expressly granted in broad, unlimited terms. Its vests wide discretion in the receiver and in the supervisory court. A petition by a receiver for approval of a compromise is addressed to the sound discretion of the court, and an order approving a compromise should be reversed only for clear abuse of discretion.⁶

The District Court did not expressly find that the referee had abused his discretion in approving the compromise, and assuming for the moment that there was a substantial controversy existing between appellant and the receiver, there is no basis in the record for such a finding. It appears that in all probability in the absence of settlement there would have been contested litigation and that it would have entailed considerable delay and...