In re Mt. Forest Fur Farms of America

• Decision Date: 05 April 1939
• Docket Number: No. 8157.,8157.
• Citation: 103 F.2d 69
• Parties: In re MT. FOREST FUR FARMS OF AMERICA, Inc. MERRITT et al. v. MT. FOREST FUR FARMS OF AMERICA, Inc.
• Court: U.S. Court of Appeals — Sixth Circuit

103 F.2d 69 (1939)

In re MT. FOREST FUR FARMS OF AMERICA, Inc. MERRITT et al. v. MT. FOREST FUR FARMS OF AMERICA, Inc.

No. 8157.

Circuit Court of Appeals, Sixth Circuit.

April 5, 1939.

William Brashear, of Detroit, Mich. (Darden & Brashear, of Detroit, Mich., on the brief), for appellants.

Ross W. Shumaker, of Toledo, Ohio (Fraser, Effler, Shumaker & Winn and Robert C. Dunn, all of Toledo, Ohio, Charles S. Abbott, of Ann Arbor, Mich., and Ross W. Shumaker, of Toledo, Ohio, on the brief), for Mt. Forest Fur Farms.

Robert S. Marx, of Detroit, Mich. (Robert S. Marx, Carl Runge, and Lawrence I. Levi, all of Detroit, Mich., on the brief), for Frank Fitzgerald, permanent trustee.

Before HICKS, ALLEN, and HAMILTON, Circuit Judges.

ALLEN, Circuit Judge.

This is a corporate reorganization proceeding under § 77B of the Bankruptcy Act, 11 U.S.C. § 207, 11 U.S.C.A. § 207. The appellants, creditors of the debtor corporation, appeal from the following orders of the District Court:

(1) An order entered August 15, 1938, approving the petition for reorganization.

(2) An order entered September 12, 1938, (a) overruling the creditors' motion to dismiss the petition, and (b) appointing a permanent trustee.

(3) A temporary restraining order issued August 16, 1938.

(4) A permanent restraining order issued August 19, 1938.

There have been various prior proceedings in this court relating to this same controversy. This is the first voluntary reorganization proceeding instituted by the appellee corporation. The principal prior appeal grew out of an involuntary petition filed by certain alleged creditors, and was disposed of in Mt. Forest Fur Farms of America, Inc. v. Farnsworth, 6 Cir., 92 F. 2d 342.

The orders of the District Court must be affirmed. In approving the petition for reorganization, the court specifically found that the petition was filed in good faith, and that it was reasonable to expect that a plan of reorganization beneficial to the creditors and stockholders could be effected. Whether good faith exists under the requirement of the statute is a question of fact, and the ruling of the court upon that question will be upheld unless the finding is clearly wrong. A lengthy hearing was held, and the findings are supported by the evidence adduced therein, as well as by the pleadings. The petition set forth the jurisdictional prerequisites and its allegations show that an equity will be left after the claims of the creditors are satisfied and that there is a possibility of successful reorganization. Cf. Detroit Trust Co. v. Campbell River Timber Co., 9 Cir., 98 F.2d 389, 393. The fact that a state receivership existed is not controlling. Cf. Kreuger v. Knickerbocker Hotel Co., 7 Cir., 81 F.2d 981. No abuse of discretion is shown in the court's approval of the petition.

The appointment of a permanent trustee likewise was a discretionary order. McAdoo & Neblett v. F. P. Newport Corp., Ltd., 9 Cir., 93 F.2d 630. When a petition to reorganize has been approved, the appointment of the trustee is authorized under the statute, Title 11, § 207(c), U.S.C., 11 U.S.C.A. § 207(c), and there is no proof that the action here was improper.

The court's refusal to dismiss the petition is clearly justified, as no plan has yet been proposed. Such a dismissal is not authorized before the filing of a plan unless lack of good faith clearly appears from the record. R. L. Witters Associates, Inc. v. Ebsary Gypsum Co., Inc., 5 Cir., 93 F.2d 746. There is no such showing here.

The motion to dismiss was premature. With reference to these preliminary matters, when the petition for reorganization is fair upon its face, the courts do not assume that the rights of the parties will be impaired in advance of the determination of controverted questions. Clarke v. Utilities Power & Light Co., 7 Cir., 90 F.2d 798. Cf. Federal Land Bank v. Strawn, 6 Cir., 102 F.2d 676 decided March 17, 1939.

The orders approving the petition for reorganization, overruling the motion to dismiss the petition, and appointing the permanent trustee, are affirmed. As to the restraining orders of August 16, 1938, and of August 19, 1938, the record shows that in the case entitled Kimball and Latting v. Bangs, No. 180,924 in chancery, pending in the Circuit Court of Wayne County, Michigan, an order was entered by the state court in substance restraining the debtor, its stockholders, officers and directors and a certain stockholders' committee of the debtor corporation, the Mount Forest Fur Farms, Inc., a Michigan corporation, its directors, officers and stockholders, agents, representatives and attorneys, from preparing or in any way aiding the institution of reorganization proceedings on behalf of the debtor corporation in the District Court without the consent of such state court, and that under this restraining order the directors of the debtor corporation were found by the state court to have been guilty of contempt of court in instituting such proceedings. This restraining order was erroneously entered. It denied to the appellee, its directors, stockholders and attorneys, access to the federal courts, thus depriving them of their constitutional right to relief under § 77B of the Bankruptcy Act. Art. 1, § 8, clause 4,...