In re Chelsea Hotel Corporation

• Decision Date: 08 March 1957
• Docket Number: No. 12136.,12136.
• Citation: 241 F.2d 846
• Parties: In the Matter of CHELSEA HOTEL CORPORATION, Debtor, 601 West 26 Corp. and Claire Freidus, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

241 F.2d 846 (1957)

In the Matter of CHELSEA HOTEL CORPORATION, Debtor,

601 West 26 Corp. and Claire Freidus, Appellants.

No. 12136.

United States Court of Appeals Third Circuit.

Argued March 4, 1957.

Decided March 8, 1957.

Murray Fredericks, Atlantic City, N. J., for appellants.

William F. Hyland, Camden, N. J., for appellee.

Before MARIS and GOODRICH, Circuit Judges, and McILVAINE, District Judge.

MARIS, Circuit Judge.

This is an appeal from an order of the District Court for the District of New Jersey entered in a corporate reorganization proceeding under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. The debtor is the owner of a large ocean-front hotel in Atlantic City and the appellants are stockholders of the debtor and also claim as creditors. The proceedings followed disagreements between the appellants' group and another group of stockholders, each of which owned one-half of the debtor's stock.

It appears that an order for the sale of the hotel at auction had been entered by the court on July 18, 1956 and that on August 29, 1956 an order was entered on the application of the stockholders postponing the sale to permit the completion of a purported settlement by the parties of their disputes which would provide for the payment in full of all proper creditors' claims and administration expenses. The order directed the parties to deposit with the trustee by September 10, 1956 the sum of $550,000 in cash, which was estimated to be the amount required to pay creditors and administration expenses, or a commitment from a financial institution to pay that sum, in default of which the sale was to be held on September 10th.

On September 5, 1956 a petition was presented to the court on behalf of the stockholders on which an order was entered the same day, returnable September 19, 1956, to show cause why the hotel property should not be conveyed to a new corporation to be formed by them for a consideration which would include $450,000 in cash and $1,250,000 to be secured by mortage. At the hearing on September 19th the petitioners asserted that $450,000 would be sufficient to pay off the creditors and administration expenses but offered to provide certain security for the payment of any excess. The court accordingly entered an order on September 21, 1956 directing the parties within 10 days to file with the clerk certain financial statements and personal guarantees of individual stockholders, and agreements of subordination of mortgages and assignments of stock to be held by the trustee as security, and fixing October 18, 1956 as the time for a further hearing.

At the hearing on October 18th it appeared that certain of the documents called for by the order of September 21st had not yet been filed or provided. Concluding that the petition of September 5th was unsound and noting that the parties had failed to deposit the sum of $550,000 in cash or its equivalent, as directed by the order of August 29, 1956, the court on October 22, 1956 entered the order appealed from which denied the petition of September 5, 1956, discharged the order to show cause issued pursuant thereto, forfeited the sum of $12,500 which had been deposited with the trustee as security for the completion of the proposed settlement pursuant to the order of August 29, 1956, and referred to a referee all matters relating to the proceeding except such as are reserved to a judge by Chapter X of the Bankruptcy Act.

The appellants charge that the court was guilty of an abuse of discretion in making the order of October 22nd. They assert that as much as $550,000 in cash was not needed to pay off the claims of creditors and the administration expenses and that the personal indemnity which they offered was adequate to cover any excess of these claims over the $450,000 in cash which they were prepared to deposit. Accordingly, they argue, the court should have granted their petition of September 5th instead of...