In re Ira Haupt & Company
| Citation | 304 F. Supp. 917 |
| Decision Date | 29 July 1969 |
| Docket Number | No. 64 B 259.,64 B 259. |
| Parties | In the Matter of IRA HAUPT & COMPANY, a Limited Partnership, Bankrupt. |
| Court | U.S. District Court — Southern District of New York |
COPYRIGHT MATERIAL OMITTED
Weil, Gotshal & Manges, and Seligson & Morris, New York City, for trustee, Harvey R. Miller, New York City, of counsel.
Rosenman, Colin, Kaye, Petschek, Freund & Emil, New York City, for objectants, Max Freund, New York City, of counsel.
Milbank, Tweed, Hadley & McCloy, New York City, for Chase Manhattan Bank, N.A. and New York Stock Exchange.
This is a petition to review an order and decision of the referee in bankruptcy, Edward J. Ryan, who authorized the trustee in bankruptcy, Charles Seligson, as trustee for the bankrupt, Ira Haupt and Company (Haupt), to compromise two controversies. These controversies arise out of the sea of litigation spawned by the so-called "Salad Oil Scandal" of November 1963. American Express Warehousing, Ltd. v. Transamerica Insurance Co., 380 F.2d 277 (2d Cir. 1967). The referee also approved the proposed settlement agreements and authorized the trustee to take any and all steps in the performance of the agreements. The referee's decision and order are affirmed.
The first controversy involves the claims of Haupt against American Express Company (Amexco). These claims are embodied in a complaint filed by the trustee on behalf of Haupt and pending in the Supreme Court of New York. The complaint contains three causes of action.
The first cause of action alleges, in essence, that Amexco conducted its field warehousing activities at Bayonne and Jersey City, New Jersey, through subsidiaries, American Express Field Warehousing Corporation (Field) and its successor, American Express Warehousing, Limited (Limited) and that both of these subsidiaries were dominated and controlled by Amexco to such an extent that they were mere agents and instrumentalities of Amexco. It is further alleged that these field warehousing subsidiaries were operated in a negligent manner in that Amexco failed to take reasonable precautions, although the danger was foreseeable, to prevent the fraud and forgery which occurred with respect to the storage of goods in, and the issuance of receipts at, its field warehouses. It is then alleged that as a result of such negligence, Anthony DeAngelis, the president of Allied Crude Vegetable Oil Refining Corporation (Allied) caused Amexco to issue millions of dollars worth of warehouse receipts for which there was, in fact, no oil in tanks under the control of Field and Limited at Bayonne. It is next alleged that such negligence enabled DeAngelis, in or about October or November 1963, to appropriate from Limited at its field warehouse in Bayonne a quantity of warehouse receipts which DeAngelis thereafter caused to be forged or otherwise caused to be executed and to appear to have been validly issued by Limited. Then such forged receipts were allegedly transferred by DeAngelis to Haupt, or to banks for Haupt's account, as security for loans made by Haupt to Allied or for margin for commodity transactions engaged in by Allied in which Haupt acted as Allied's broker. These receipts had an alleged face value of $18,461,707.44, the loss of which allegedly has been sustained by Haupt. It is further alleged that Haupt's business, valued at $20,000,000, has been completely destroyed as a result of Amexco's negligence. Allied, since November 1963, has been adjudicated a bankrupt and, it is alleged, Allied's total indebtedness to Haupt is $31,823,726.13. This latter amount, together with $20,000,000 for the alleged value of Haupt's business, is sought as damages in the first and second causes of action.
The second cause of action alleges that the negligence described in the first cause of action was gross negligence and wilful, wanton, and reckless conduct on the part of Amexco resulting in injury to Haupt of more than $50,000,000. Punitive damages are also sought. It is alleged that the first two causes of action arise under New Jersey law.
The third cause of action seeks $18,000,000 damages, in the alternative, on the theory that the ten forged warehouse receipts were issued to Haupt, or its banks, by agents or employees of Amexco with actual or apparent authority from Amexco on which Haupt relied to its detriment. Amexco is, consequently, estopped, the complaint alleges, to deny its liability as to the face amount of these receipts.
The second controversy arises out of the claims of Haupt against Allied and result from their mutual arrangements. These claims have been filed in Allied's bankruptcy proceeding now pending in the United States District Court in New Jersey claiming $31,823,726.13 against that estate.
The settlement of each of these controversies is conditioned upon approval of each by the appropriate bankruptcy court. Thus, the proposed settlement with Allied (Trustee's Exh. 5) was submitted to the Allied Bankruptcy Court in New Jersey which has approved that proposed settlement (Tr. p. 451-452).1
There were a number of other conditions precedent which had to be satisfied before these settlements could become final and binding on all parties. (Trustee's Exh. 2, p. 6; Exh. 3, p. 2; Exh. 7, p. 21-22). These conditions have now been met, except a final approval of this court and a Haupt closing date (which must now be fixed within ten business days after final approval here). (Tr. p. 460-461).
Suit was brought unsuccessfully by shareholders of Amexco in the Supreme Court of New York seeking to enjoin these and other proposed settlements. (Trustee's Exh. 15B, 15C). The final determination of this suit in favor of the settlements was another condition precedent. (Tr. p. 31, Trustee's Exh. 2, p. 6, Trustee's Exh. 7, p. 21-22).
The final approval of Limited's petition for an arrangement under Chapter XI of the Bankruptcy Act was another related condition precedent. (Tr. p. 32, Trustee's Exh. 7, p. 22). A claim for $18,461,637.44 had been filed on behalf of Haupt in that proceeding. (Trustee's Exh. 2, p. 1).
Another significant condition which has already been met was a ruling from the Internal Revenue Service that funds being made available by Amexco under this settlement with Amexco and under the Basic Proposal are deductible. (Tr. p. 30, Trustee's Exh. 3, p. 2; Exh. 7, p. 21).
The Basic Proposal (Trustee's Exh. 7) is an underlying agreement presented by Limited's official creditor's committee whereby Amexco has agreed to establish a fund, over and above Limited's insurance, for the payment of claims against Limited resulting from Limited's issuance of warehouse receipts for which there was, in fact, no oil in its possession and for the payment of claims arising out of forged receipts. The Basic Proposal has been adopted by the official creditor's committee of Limited as a part of its reorganization plan (Trustee's Exh. 7, p. 1-3) and that plan has been approved by this Court. (Ryan, J.) (Trustee's Exh. 26).
Claims filed in Haupt's bankruptcy, Allied's bankruptcy, Limited's bankruptcy and the suit against Amexco, along with other suits arising out of the Salad Oil Scandal, are the subject of these related compromise proposals. (Trustee's Exhs. 1-8). Consequently, the terms of the proposed settlements and the underlying agreements are complex and interrelated with the claims of many others who were likewise engulfed in this financial debacle. However, the salient provisions of the instant settlements and agreements (for which the official creditor's committee of Limited will act as special trustee for the purpose of receiving and disbursing funds and documents (Tr. p. 27, Trustee's Exh. 1)), are as follows:
1) The Haupt trustee will receive from the special trustee $2,500,000, in cash, on the Haupt closing date in full settlement of its claims against Amexco and its affiliates and certain insurers. Amexco is committed to pay to Haupt's trustee $1,150,000 (Amexco-Special Trustee Agreement, Trustee's Exh. 3, p. 1-2). The balance of $1,350,000 is payable in accordance with directions given by various acceptors of the Basic Proposal (Trustee's Exh. 6, p. 2).
2) The trustee's claim against Allied in the sum of $31,823,726.13 is to be allowed (subject to withdrawal or disallowance of duplicative claims) but will be subordinated to "the extent of its proportionate interest in the aggregate amount required to pay each composition creditor, after payment of administration expenses and priority claims, an amount equal to fifty percent" of its allowed claims, plus interest on such distribution at the rate of 6% per annum. (Trustee's Exh. 5, p. 1).
3) If Limited executes and delivers a general release in favor of Haupt and the Haupt trustee, the Haupt claim filed in Limited's Chapter XI proceeding will be withdrawn .
4) The collateral security held by Continental Illinois National Bank and Trust Company of Chicago, represented by warehouse receipts pledged by Haupt, shall be valued in the sum of $1,400,624.18 (less reasonable collection expenses, including attorney's fees and legal expenses, as may be fixed by this Court but not to exceed $200,000). This valuation is determined by the amount Continental is to receive from Amexco pursuant to agreement. (Trustee's Exh. 8).
5) For the purposes of enforcement and consummation of the agreements only, the parties involved will submit to the summary jurisdiction of this Bankruptcy Court and provision is made for the service of process relating to such jurisdiction. (Trustee's Exh. 2, p. 6).
6) Provision is made for the Haupt closing date, a date by which all conditions precedent to the effectiveness of the agreements must be satisfied, and a date for terminating the agreements if the conditions have not been met. (Trustee's Exh. 2, p. 5-6).
The proposed settlements and the underlying agreements resulted from negotiations which...
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