IN RE COLONIAL SERVICES COMPANY

• Decision Date: 20 June 1973
• Docket Number: No. 72-1734.,72-1734.
• Parties: In the Matter of COLONIAL SERVICES COMPANY, a corporation, Bankrupt. Gordon L. WEBER, Appellant, v. J. J. MICKELSON, Trustee in Bankruptcy of Colonial Services Company, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

480 F.2d 747 (1973)

In the Matter of COLONIAL SERVICES COMPANY, a corporation, Bankrupt.

Gordon L. WEBER, Appellant, v. J. J. MICKELSON, Trustee in Bankruptcy of Colonial Services Company, Appellee.

No. 72-1734.

United States Court of Appeals, Eighth Circuit.

Submitted May 16, 1973.

Decided June 20, 1973.

James L. Wahlfors, Minneapolis, Minn., for appellant.

Hyman Edelman, Minneapolis, Minn., on brief for appellee.

Before MATTHES, Chief Judge, and MEHAFFY and STEPHENSON, Circuit Judges.

MATTHES, Chief Judge.

This is the appeal of a creditor, Gordon L. Weber, who was a vice-president of the bankrupt, Colonial Services Co., from a judgment of the District Court sustaining an order of the referee in bankruptcy that the creditor surrender to the trustee a preferential payment in the amount of $10,497.86, and that the creditor's claim against the bankrupt for $4,733.33 be unrecoverable pursuant to 11 U.S.C. § 93(g) until the preference is repaid.

The facts of the case are simple. The bankrupt was organized on February 23, 1970, when its predecessor absorbed the assets of five companies; but soon thereafter its financial difficulties became so apparent that trading in its stock was suspended by the State of Minnesota. Then, on December 31, 1970, the bankrupt disposed of its restaurants, its principal sources of cash flow, leaving as its only assets possible royalties from the food franchises it had sold, two heavily encumbered tracts of land, and some stock in another corporation. Arrayed against these were large liabilities.

In June of 1971, the bankrupt procured a loan of $750,000 secured by a first mortgage on one of its tracts of land and a third mortgage on the other. Out of the proceeds of this loan, the creditor Weber was paid, on June 18, 1971, back wages and unpaid employee business expenses of $10,497.86. Fifty-three days later, August 9, 1971, the bankrupt filed a Chapter XI rearrangement proceeding. When its plan failed to secure the approval of the requisite number of creditors, Colonial was, on January 11, 1972, adjudged bankrupt.

This particular facet of the proceeding was commenced on December 6, 1971, when the creditor, Weber, filed a claim, as subsequently amended, for $4,733.33, as compensation for services rendered to the bankrupt during and in connection with the arrangement proceeding. The trustee objected to the claim, and counterclaimed for the previously paid $10,497.86, claiming it was a voidable preference. The referee held the prior payment to Weber was a "preferential payment . . . recoverable by the trustee pursuant to Sec. 60a and b of the Bankruptcy Act," 11 U.S.C. § 96(a), (b), and held that, pursuant to 11 U.S.C. § 93(g), Weber's claim for $4,733.33 could not be allowed until the preference was surrendered. The District Court, Judge Larson, affirmed the referee in all respects and this appeal followed.

According to 11 U.S.C. § 96(a) (1), a preference is a transfer of any of an insolvent debtor's property to or for a creditor on account of an antecedent debt within four months preceding the commencement of bankruptcy proceedings, the effect of which is to enable the creditor to obtain a greater percentage of his debt than some other creditor of the same class. According to 11 U.S.C. § 96(b), any such preference may be avoided or recovered by the trustee if, at the time of the transfer, the creditor had "reasonable cause to believe" the debtor was insolvent.

Weber accepts this formulation of the trustee's right to recover, but contends it is unsatisfied in this case in three respects. He asserts: (1) that the debtor was not insolvent on June 18, 1971, the date of the payment; (2) that the creditor, Weber, did not then have reasonable cause to believe Colonial was insolvent; and (3) that the trustee has not proven that Weber, in receiving the contested payment, received a greater percentage of his debt than some other creditor of the same class.

These contentions, of course, contest only the findings of the referee, the trier of fact; but the findings of a referee cannot be disturbed on appeal unless clearly erroneous. Solari Furs v. United States, 436 F.2d 683, 684 (8th Cir. 1971); Burroughs Corp. v. Barry, 380 F.2d 427, 429 (8th Cir. ...