In re Ira Haupt & Co.

• Decision Date: 10 March 1965
• Docket Number: No. 64-B-259.,64-B-259.
• Citation: 240 F. Supp. 10
• Parties: In the Matter of IRA HAUPT & CO., a Limited Partnership, Bankrupt.
• Court: U.S. District Court — Southern District of New York

240 F. Supp. 10

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

No. 64-B-259.

United States District Court S. D. New York.

March 10, 1965.

COPYRIGHT MATERIAL OMITTED

Samuel P. Adelman, New York City, for petitioner One Estate, Inc.

Milbank, Tweed, Hadley & McCloy, New York City, for petitioners The Chase Manhattan Bank and the New York Stock Exchange.

Rosenman, Colin, Kaye, Petschek & Freund, New York City, for petitioners Bernard Klebanow, and others.

Simpson, Thacher & Bartlett, New York City, for petitioner Manufacturers Hanover Trust Co.

Irving Younger, New York City, for petitioners Julian J. Bauman, and others.

Zalkin & Cohen, New York City, for petitioners First National City Bank and Morgan Guaranty Trust Co.

THOMAS F. MURPHY, District Judge.

We have for resolution petitions for review of "orders" of Referee Edward J. Ryan. The petitioners are: Klebanow, et al., limited partners of the bankrupt (Limited Partners); the New York Stock Exchange and several banks (Exchange and Banks) and One Estate, Inc., a landlord of the bankrupt (Landlord). The principal questions presented are (a) were the Limited Partners properly disqualified from voting in the election for a trustee; (b) were the Exchange and Banks likewise properly disqualified; (c) did the referee err under the circumstances hereinafter discussed in disallowing the claim by the Landlord for voting purposes; (d) did the referee err under the circumstances hereinafter discussed in allowing votes to be cast by nine former employees of the bankrupt (Employees); and (e) under all of the circumstances, did the referee err in approving the appointment of Charles Seligson as trustee on October 6, 1964.

PRELIMINARY FACTS

On November 20, 1963, Ira Haupt & Co., a limited partnership in the stock brokerage business, having 16 general and 13 limited partners, was suspended by the Exchange. At that time Haupt was insolvent (a condition that arose out of the so-called salad oil scandal of November, 1963). On November 25, 1963, the general partners of Haupt signed an agreement with the Exchange and Banks whereby the Exchange would advance a fund to pay Haupt's customer creditors and the Banks would defer their claims against Haupt to the extent of $2 for every $1 advanced by the Exchange. The agreement provided for the appointment of a committee (the Committee) to effect the orderly liquidation of Haupt on which the Exchange and Banks were to be equally represented. James P. Mahony, Chief Examiner of the Exchange was named Liquidator. Morton Kamerman, a general partner and sole managing partner of Haupt, was engaged by Mahony to assist in the liquidation. On March 10, 1964, a supplemental agreement was made under which, inter alia, Edward Feldman succeeded Mahony since all but 150-200 of the customer accounts were satisfactorily liquidated and Mahony's expertise was no longer required.

On March 23, 1964, an involuntary petition in bankruptcy was filed against Haupt by the Limited Partners. On March 30, 1964, a petition under Chapter XI was filed on behalf of Haupt ostensibly by the general partners which provided for an arrangement which would in effect continue the operation under the original agreement of November 25, 1963. The lists were beginning to be marked off and so the jousting began.

Haupt moved on March 31, 1964, for an order staying an adjudication and on April 8th for an order staying and enjoining the Limited Partners from continuing with certain actions pending in this court and in the Supreme Court of the State of New York. The Limited Partners moved on April 9th for an order dismissing the Chapter XI petition. Haupt countered on April 21st by moving for an order dismissing the application to dismiss the Chapter XI proceeding. All of the motions were adjourned to April 27, 1964, the date which had been set for the first meeting of creditors in the Chapter XI proceeding. At this meeting the creditors were afforded an opportunity to nominate a trustee in case it should become necessary to administer the estate in bankruptcy.

On April 27, 1964, Edward Feldman and Abraham Glickman were nominated and claims were voted for them. The referee deferred ruling on the outcome of the election until the parties had had an opportunity to present evidence and memoranda on the claims sought to be voted, the qualification of the candidates, etc.

The referee rendered his decision on June 10th and entered an order on June 26th dismissing the Chapter XI proceeding on the grounds that (1) all the partners had not joined in the petition, which was not voluntary in any event since it was the act of the Committee set up by the November 25th agreement and not the act of the general partners who had, in effect, surrendered the firm's power to make independent judgments to the Exchange and Banks, acting through their agent, the Liquidator, and (2) that a Chapter XI proceeding was not appropriate to accomplish the liquidation of Haupt. The referee also held Edward Feldman elected as trustee, reserving decision on Mr. Feldman's qualifications. In so doing, he held that the Limited Partners, who had voted five claims totaling $1,795,861 for Mr. Glickman, were prevented from voting by § 44, sub. a of the Bankruptcy Act, 11 U.S.C. § 72, sub. a. This left only the ten claims totaling $11,417,174 voted for Feldman by several of the banks and others. The Limited Partners had attacked the right of all these claimants to vote, save one, Oliver Lundquist representing $19,000. The referee held it unnecessary to rule upon the objections since the one claim of Lundquist was sufficient to elect Mr. Feldman. Apparently on the day he entered the order on his decision of June 10th he then disqualified Feldman on the ground that he was too closely connected with the debtor.¹

On August 11, 1964, Judge Palmieri, on petition for review, affirmed the referee's dismissal of the Chapter XI petition and the disqualification of the Limited Partners from voting.²

THE ELECTION AND APPROVAL OF THE TRUSTEE

At the adjourned first meeting of creditors on September 11, 1964,³ the referee called for nominations for trustee. He stated his intention to proceed in the following order: (1) nominations; (2) voting; (3) objections to the claims voted, i. e., capacity of the voters, the quality of the claims, solicitation and other impediments and (4) consideration of the competency and capacity of the trustee elected by the creditors.

Nominations were made and votes cast as follows: (1) Charles Seligson, nominated by one of the banks, received the votes of 30 creditors (Banks, Exchange, brokerage houses and nine Employees of the bankrupt) representing $19,118,549.06; (2) Samuel Adelman, nominated by Lundquist, the creditor responsible for the previous election of the thereafter disqualified Edward Feldman, received the votes of four creditors including the Landlord representing $636,557.99; (3) Abraham Glickman, nominated by counsel for the Limited Partners, received the votes of seven such creditors representing $2,787,660.31.

The referee, announcing his intention to adhere to his prior ruling, held that the Limited Partners were disenfranchised under § 44, sub. a of the Bankruptcy Act, leaving nominee Glickman with no votes. The referee also disenfranchised the Exchange and the Banks, holding that under § 44(a) they constituted "other controlling bodies" of the bankrupt.⁴ After the disenfranchisement of the Limited Partners and the Exchange and Banks, there were four claims for Adelman representing $636,557.99, and 23 for Seligson representing $383,362.66, with objections lodged against almost all these claims. Then followed a hearing on the objections to the Landlord's claim, which represented the bulk of the amount which had been voted for Mr. Adelman, and considerable discussion as to the merits of the claims of the nine former Employees, which had been voted for Mr. Seligson, with the latter group being finally allowed.

Eventually, the time came when all had been heard on the capacity of voters and the quality of the claims voted, leaving the question of solicitation and other impediments and the question of the capacity of the trustee still open. Relying on the Pan-American Match Co.⁵ case, the referee elected not to further delay the election to go into the objections but to provisionally disallow all the Seligson claims against which objections had been lodged except the claims of the Employees, and declared that "Seligson has been elected trustee on 9 claims in the amount of $153,944.25; the other count being 3 claims for Samuel Adelman in the sum of $34,006.77."⁶ The referee declined to reopen the election except insofar as solicitation was concerned, which was to be taken up at the next meeting. The meeting was then adjourned to September 30, 1964.

The September 30th meeting was devoted to the expounding of objections by the Landlord to the disallowance of its claim and resulting confusion as to whether the referee had allowed $95,615.45 of such claim plus an application by the Limited Partners to reopen the voting to prove that the nine claims of the Employees were tainted with fraud, before the referee could proceed on his announced procedure, viz., the resolution of the issues relating to solicitation. An associate in the law firm representing the Exchange was examined on the matter of solicitation by the Exchange and the Banks of the Employees' claims, raised and pursued by Mr. Adelman who was also counsel for the Landlord. The referee then allowed examination of Mr. Kammerman by Mr. Freund, counsel for the Limited Partners, on the question of whether the filing of these claims amounted to fraud since it was alleged no money was in any way due the Employees and they knew it. Cross-examination by Mr. Younger, counsel for the Employees, had scarcely commenced when the meeting was abruptly terminated and adjourned by the referee to October 23rd.

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