In re Ira Haupt & Co.

• Decision Date: 17 February 1966
• Citation: 252 F. Supp. 339
• Parties: In the Matter of IRA HAUPT & CO., a Limited Partnership, Bankrupt.
• Court: U.S. District Court — Southern District of New York

252 F. Supp. 339

In the Matter of IRA HAUPT & CO., a Limited Partnership, Bankrupt.

United States District Court S. D. New York.

February 17, 1966.

Samuel P. Adelman, New York City, for petitioner.

Seligson & Morris, New York City, for trustee; Harvey R. Miller, New York City, of counsel.

BONSAL, District Judge.

Petitioner, One Estate, Inc., seeks review of an order of Referee Ryan dated December 6, 1965, which authorized the Trustee in Bankruptcy of Ira Haupt & Co., Bankrupt (Trustee) to compromise a controversy with the New York Stock Exchange and with certain named banks, and which approved a proposed Amended Settlement Agreement (the Agreement) between the parties to the controversy, a copy of which is attached as Exhibit "A" to the Referee's order. For the reasons hereinafter stated, the Referee's order is affirmed and the petition for review is denied.

On November 20, 1963 Ira Haupt & Co. (Haupt) was in acute financial difficulties as a result of the so-called salad oil scandal and was suspended from further trading on the New York Stock Exchange (Stock Exchange). In order to preserve public confidence in the stock market and for the protection of Haupt's public customers, its general partners (and the estate of a deceased general partner) entered into an agreement (known as the "November 25" agreement) with the Stock Exchange and Haupt's banks for the "orderly liquidation" of the business of Haupt. Under the November 25 agreement, the Stock Exchange advanced a total of $9,500,000 and the banks deferred their claims against Haupt to the extent of $2.00 for every $1.00 advanced by the Stock Exchange. The purpose of this unique and effective operation was to enable the Liquidator appointed under the November 25 agreement to pay or purchase the claims of Haupt's public customers. The facts surrounding the November 25 agreement are fully set forth in Judge Palmieri's opinion of August 11, 1964, D.C., 234 F.Supp. 167, and need not be repeated here.

During the months of February and March of 1964 the banks which were parties to the November 25 agreement received payments from the Liquidator aggregating $15,735,732.34 on account of their claims against Haupt, and by early March, 1964, all but 100 to 150 customers' claims out of 20,000 had been liquidated. After an abortive Chapter XI proceeding, Haupt went into bankruptcy following an involuntary petition filed against it on March 23, 1964.

In the bankruptcy proceeding, the banks which were parties to the November 25 agreement and the Stock Exchange filed proofs of claim aggregating $29,043,227.28, which included the claim of the Stock Exchange for the $9,500,000 advanced by it under the November 25 agreement and which was subordinated to the claims of the banks.

The Trustee, who was appointed on October 6, 1964, filed applications under Section 57(g) of the Bankruptcy Act (11 U.S.C. § 93(g)) with respect to each of the claims filed by the banks, alleging that the payment received by each bank from the Liquidator constituted a preference (Section 60(a) of the Bankruptcy Act, 11 U.S.C. § 96(a)). In its applications, the Trustee sought the disallowance of the claims of the several banks unless the payments received by them from the Liquidator were paid to the Trustee with interest. Each of the banks filed an answer denying that the payments received by it from the Liquidator constituted a preference under the Bankruptcy Act. There followed negotiations between the Trustee, the banks and the Stock Exchange, resulting in the Agreement which is the subject of this petition for review. Briefly summarized, the Agreement provides:

(1) The banks and the Stock Exchange will defer receiving any amounts on their claims until all remaining customers' claims have been paid in full out of the assets in the hands of the Trustee. If such assets are insufficient, the banks will turn over to the Trustee sufficient funds to pay such claims in full plus an amount to cover the Trustee's commissions.

(2) The banks and the Stock Exchange will defer receiving any amounts on their claims until all other parity creditors receive out of the remaining assets in the hands of the Trustee, dividends up to a proportion of their claims equal to the proportion of the banks' claims represented by the payments received by them from the Liquidator, plus interest at the rate of 6% from February 20, 1964. If the assets in the hands of the Trustee should be insufficient to make such payments with interest, the banks will pay to the Trustee sufficient funds to enable him to do so, thereby putting the banks and the parity creditors on an equal footing.

(3) If after making the distributions provided in (1) and (2) there are assets remaining in the hands of the Trustee, they will be used for the payment of further dividends to the banks and the other creditors pursuant to the Bankruptcy Act.

(4) If the claims of the banks are determined to be invalid in toto, the banks will pay to the Trustee the amounts received from the Liquidator with interest at the rate of 6% per annum.

(5) The Trustee will waive commissions with respect to amounts received by the banks from the Liquidator except to the extent that the banks are required to make the payments to the Trustee as provided in (1) and (2) above.

(6) The banks and the Stock Exchange will submit to the summary judgment of the Bankruptcy Court with respect to the enforcement of the Agreement and expressly waive any defenses which they may have under the statute of limitations.

(7) The Agreement is conditioned on approval by the Bankruptcy Court.

The Agreement, subject to the approval of the court, was entered into by the parties on June 17, 1965 and was the subject of hearings before the Referee on September 21, 1965, October 5, 1965 and October 20, 1965.

Notice of the Trustee's application for approval of the Agreement was sent to 1800 creditors and interested parties, and was duly published. Only petitioner and the limited partners of the bankrupt filed objections. The objections filed by the petitioner and the limited partners of the bankrupt were the subject of detailed consideration by the Referee at the hearings above mentioned. Various amendments were made in the Agreement before it was approved by the Referee. Following the close of the hearings, counsel for the limited partners, by letter to the Referee dated November 11, 1965, indicated informally various objections to the Agreement in connection with the settlement of the final order approving it. However, the limited partners have not sought review of the Referee's order approving the Agreement.

Petitioner opposed the Agreement from the outset. It contends that the Agreement is so confused and...