In re Fox West Coast Theatres, 8210.

• Decision Date: 23 February 1937
• Docket Number: No. 8210.,8210.
• Parties: In re FOX WEST COAST THEATRES. TALLY et al. v. FOX FILM CORPORATION et al.
• Court: U.S. Court of Appeals — Ninth Circuit

88 F.2d 212 (1937)

In re FOX WEST COAST THEATRES.^*

TALLY et al. v. FOX FILM CORPORATION et al.

No. 8210.

Circuit Court of Appeals, Ninth Circuit.

January 13, 1937.

As Modified on Denial of Rehearing February 23, 1937.

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Wm. H. Neblett, of Los Angeles, Cal., for appellants.

Oscar Lawler, of Los Angeles, Cal., Alfred Sutro, of San Francisco, Cal., and Alfred Wright, of Los Angeles, Cal., for appellees Twentieth Century Fox Film and Nat'l Theatres Corporation.

Walter K. Tuller, Pierce Works, Homer I. Mitchell, and W. B. Carman, Jr., all of Los Angeles, Cal., for appellees Skouras and others.

John B. Bertero, of Los Angeles, Cal., for appellee Fox West Coast Theatres.

P. N. McCloskey, of Los Angeles, Cal., for appellee S. W. McNabb.

George E. Farrand and Leonard B. Slosson, both of Los Angeles, Cal., for appellee Albert W. Leeds.

Before WILBUR, GARRECHT, and HANEY, Circuit Judges.

WILBUR, Circuit Judge.

The Fox West Coast Theatres, Inc., on February 27, 1933, filed a petition in voluntary bankruptcy in the District Court of the United States for the Southern District of California, in the form provided therefor by the Supreme Court (11 U.S.C. A. following section 53, p. 58). It alleged therein "that it owes provable debts which it is unable to pay in full, that it is willing to surrender all of its property for the benefit of its creditors and that it desires to obtain the benefit of the acts of Congress relating to bankruptcy."

Petition for Appointment of Receiver in Bankruptcy.

Accompanying the petition in bankruptcy was a petition of the alleged bankrupt for the appointment of a receiver. It was alleged in this petition that the "bankrupt is engaged in the business of operating motion picture theatres and exhibiting motion pictures and other forms of entertainment therein and in holding stock in other companies engaged in like business." It was alleged that the bankrupt was the lessee and operator of forty-two theatres described by name in the petition and that it owned capital stock of various corporations therein named in amounts therein stated; among others, four corporations were named in which the bankrupt owned all the stock, namely, Fox West Coast Theatres, Corporation, Carthay Circle Theatre Company, East River Theatre Corporation, Pantages' Hollywood Theatre, Ltd., and Screen-Mirror, Ltd. It was alleged that these subsidiary corporations operated either directly or through their subsidiaries 375 theatres located in thirteen states; that on February 25, 1933, it had sold and transferred to the Fox Riverside Theatre Corporation, and other newly formed corporations, thirty-eight theatres with their leases and equipment "in order to segregate such properties of the bankrupt as are presently profitable and can be operated conveniently as a unit, and to facilitate the administration of the estate and increase the distributable share of each creditor"; that the entire capital stock of the Fox Riverside Theatre Corporation, and of the other newly formed corporations to which these assets had been transferred, plus a demand promissory note, was issued to the Fox California Theatres Corporation, which in turn issued all of its stock plus a demand promissory note for $1,630,000 to the Fox West Coast Theatres Corporation; and that the latter corporation issued all of its capital stock plus a demand promissory note for $1,630,000, to the bankrupt. In addition to the theatres transferred, as aforesaid, certain stock owned by the bankrupt was transferred to the Fox West Coast Theatres Corporation the names and amounts being specifically detailed in the petition. By this process the bankrupt exchanged certain of its theatres and properties for stock which in turn represented those properties plus a promissory note. The agreement of transfer of the property of the corporation contained a provision that if within six months a receiver or trustee had been appointed for the alleged bankrupt the receiver or trustee "shall have the unqualified right within sixty days from and after his appointment and qualification to rescind the contract, subject to the approval of the appointing court." In the petition for appointment of receiver, it is stated that the net result of the transfers therein alleged "is the creation of a system of theatres constituting * * * a presently self-sustaining group, which can be operated as such with a minimum of effort by the receivers and trustee." It is pointed out that the appointment of a receiver, and the continuous operation of the theatres, are necessary in order to preserve the good will of the several theatres and to protect the rights of the bankrupt in its rental agreements of sound producing equipment under leases which "authorize the lessee to repossess itself of such equipment in case of default in the terms of such rental agreement." It is also pointed out that if a receiver is not appointed and the theatres are closed "for the period of adjudication," a large part of the value of the assets of petitioner may be impaired and destroyed. It is alleged that the principal creditors of the petitioner are the Wesco Corporation in an amount in excess of $13,000,000, and the Fox Film Corporation in an amount in excess of $2,000,000, constituting at least 75 per cent. in amount of all the creditors "excluding contingent liabilities of your petitioner." The two creditors named joined in the request for appointment of a receiver, and on the same day (February 27, 1933) and before the adjudication in bankruptcy, Charles P. Skouras was appointed receiver. Later in the day John Treanor was appointed coreceiver. Skouras, on the same day, appointed his attorney and petitioned the court to approve the appointment. The appointment was approved.

On the next day, February 28, 1933, an order adjudicating the petitioner Fox West Coast Theatres a bankrupt was made, and on March 1, 1933 the bankruptcy proceeding was referred to Samuel W. McNabb, referee in bankruptcy.

Thereafter, the property of the bankrupt was administered in the bankruptcy court. Three hundred fifty-three claims aggregating $43,294,552.35 were filed and were allowed in the sum of $15,443,388.16, which included expenses of administration incurred, aggregating $638,757.78. The above transfer of the bankrupt's property made February 25, 1933, and disclosed to the court in the petition for the appointment of receiver two days later, was formally approved by the trustees in bankruptcy in their report filed July 29, 1933, and by the referee in bankruptcy December 6, 1933. No appeal was taken from this order.

Among the claims in bankruptcy was that of one of the appellants, T. L. Tally, upon his lease with the bankrupt, allowed for the sum of $6,634.85. This claim was sold by Tally to the Fox Film Corporation for the face value thereof. In addition thereto Tally, who was the owner of one of the theatre properties leased by the bankrupt, assigned to National Theatres Corporation a note and mortgage securing his lease in the amount of $50,000 in consideration of the payment to him by the National Theatres Corporation of the sum of $49,064.89 and the trustees in bankruptcy released their claim to the equipment in Tally's theatre by consenting to dismissal of their appeals from the order of the District Court confirming title in Tally. Mutual releases were then exchanged by Tally, the National Theatres Corporation, and the trustees in bankruptcy.

Under Tally's lease the limit of the liability of the bankrupt was the security held by him, consisting of the equipment in his theatre (appraised at $20,000) and the note and mortgage ($50,000).¹ The net result of these transactions was that Tally secured $55,699.74 in cash and acquired title to the equipment in his theatre appraised at $20,000, and has transferred his rights under the lease to the National Theatres Corporation in consideration therefor.

The relation of the appellant Corbar Corporation to the bankrupt may be briefly stated as follows: It had leased two theatres to the Far West Theatre Corporation, one in Pasadena and one in Los Angeles, and the obligation of the lessees had been guaranteed by the bankrupt. On May 9, 1933 the Far West Theatre Corporation and Corbar Corporation had entered into an agreement which provided that the leases be terminated and liability theretofore or then existing be cancelled in consideration of the payment by the Far West Theatre Corporation to Corbar Corporation of $2,500 and the surrender by the Far West Theatre Corporation of its right to the equipment in the theatres appraised at $45,000. The trustees in bankruptcy deeming the Far West Theatre Corporation a subsidiary of the bankrupt sought authority from the referee to consent to the settlement made by its subsidiary, and the transaction was approved by the referee May 16, 1933. On December 6, 1933, the stock of this subsidiary became vested in the trustees for the bankrupt estate.

Thereafter the property of the bankrupt was sold to the National Theatres Corporation, formerly the Wesco Corporation, the sole stockholder of the bankrupt, for an amount equivalent to the face value of the allowed claims plus the expense of administration. The claims, excepting one for about $1,000,000 for income taxes which was assumed by the purchaser with the consent of the government, were thus paid in full.

On September 18, 1935, an order was made closing the bankrupt proceedings.

Appellants' Petition.

Thereafter, on December 6, 1935, the appellants Tally and Corbar Corporation filed a petition in the bankruptcy matter and gave notice of the filing of said petition on behalf of themselves "and creditors similarly situated" and that they would move the court on February 3, 1936, "to set aside the adjudication in bankruptcy" upon the ground "that extrinsic fraud was practiced upon the court and that the adjudication is void because the judge of...