In re Process-Manz Press, Inc., 62 B 9414.
| Decision Date | 04 December 1964 |
| Docket Number | No. 62 B 9414.,62 B 9414. |
| Citation | 236 F. Supp. 333 |
| Parties | In the Matter of PROCESS-MANZ PRESS, INC., a corporation, Bankrupt. |
| Court | U.S. District Court — Northern District of Illinois |
COPYRIGHT MATERIAL OMITTED
Norman H. Nachman, Joseph Stein, Rothbart, Stein & Moran, Chicago, Ill., for A. J. Armstrong Co.
William S. Collen, Collen & Kessler, Joseph L. Kadison, Chicago, Ill., for trustee.
Irving H. Goldberg, Goldberg, Weigle, Mallin & Rivkin, William B. Davenport, Raymond, Mayer, Jenner & Block, Edward P. Madigan, Madigan & Thorsen, Chicago, Ill., for certain unsecured creditors.
Robert A. Downing, Sidley, Austin, Burgess & Smith, William I. Goldberg, Hopkins, Sutter, Owen, Mulroy, Wentz & Davis, Bernard E. Lyons, Schiff, Hardin, Waite, Dorschel & Britton, Harry M. Brostoff, Aaron, Schumberg & Hess, Seymour Price, Charles E. Herzog, Chicago, Ill., for certain reclamation creditors.
Carroll A. Teller, Teller, Levit & Silvertrust, Chicago, Ill., for bankrupt.
This matter is before me on the petition of A. J. Armstrong Co., Inc., (hereinafter referred to as Armstrong) seeking review of two orders entered by the referee, one on November 27, 1963, and the other on December 2, 1963. The order of November 27 (1) overruled the motion of Armstrong challenging the summary jurisdiction of the Court; (2). invalidated a chattel mortgage and trust deed executed as part of a transaction entered into on December 14, 1961 by Armstrong and the bankrupt securing a loan of $2,500,000; (3) subordinated the claim of Armstrong (asserted to exceed $3,750,000) to the claims of all general creditors herein filed and allowed (in an approximate amount of $1,181,000); and (4) directed a sale of all of the assets of the bankrupt free and clear of the liens asserted by Armstrong. The order of December 2, implemented the sale portion of the order of November 27, by fixing the date of sale and by authorizing the trustee to employ an auctioneer to sell the assets. The dates set for the sale were February 11 through February 16, 1964. The sale was not held, however, by reason of the objection of Armstrong thereto and by the compliance by Armstrong with conditions of stay of said orders imposed by the referee and affirmed, in turn, by this Court and the Court of Appeals. The stay conditions were that Armstrong post two corporate surety bonds totaling $3,000,000, one in the amount of $2,000,000, securing the trustee and the unsecured creditors herein, and one in the amount of $1,000,000, securing the reclamation petitioners claiming under conditional sales contracts or leases. The corporate surety bonds were posted by Armstrong on February 7, 1964, three days before the first sale date.
The key order under review is, therefore, the order of November 27, 1963. This order, containing detailed findings and conclusions of the Referee, is 66-pages and was entered after many months of hearings before the Referee. Both the trustee and Armstrong filed lengthy briefs before the Referee prior to the entry of this order, and both parties have likewise filed lengthy, detailed briefs before me. I have just concluded my review of the orders of the Referee under challenge, the pleadings, the transcript of the testimony and the exhibits upon which the orders were based, the petition for review by Armstrong and the briefs of the parties.
Armstrong's contentions here are basically the same as they were before the Referee, namely, that the Court does not have summary jurisdiction to adjudicate the claim of Armstrong on the merits. In addition, Armstrong now asserts that the findings of the Referee are not supported by competent evidence in the record. Armstrong also asserts that the Referee should have made additional or contrary findings upon the conflicting evidence before him. Armstrong also contests the order of the Referee on the merits, i. e., the holding that the transfers of December 14, 1961, were fraudulent conveyances under Sections 67, sub. d and 70, sub. e of the Bankruptcy Act and the holding that Armstrong's entire claim should be subordinated to the claims of all general creditors filed and allowed herein.
A review of the pertinent facts necessary for an understanding of the legal issues is hereinafter set forth.
The three key participants involved are Process-Manz Press, Inc., the bankrupt; Process Lithographers, Inc., and A. J. Armstrong Co. Inc.
Process-Manz Press, Inc. (hereinafter referred to as "Manz" or "the bankrupt") was engaged in the printing business and had been so for approximately 90 years. It occupied a large building situated on more than one-half of a city block in Chicago at the date of bankruptcy, November 23, 1962. It had formerly been known as Manz Corporation but had changed its name to Process-Manz Press, Inc. in May, 1962.
Process Lithographers, Inc., (hereinafter referred to as "Lithographers") is a New York corporation which was engaged in the printing business in New York City. It has now been adjudicated a bankrupt in New York.
Armstrong is engaged in the finance business in New York. It is successor to City Industrial Company, a partnership formerly engaged in the finance business.
On March 20, 1961 the three principal shareholders of the bankrupt, Morrie Moss, Lester Neumann and Louis Kessler, owners of in excess of 91% of the stock of Manz, entered into a written contract for the sale of all of their stock, both preferred and common, to Lithographers. The contract provided for payment without interest of the sum of $2,236,083.04 to the three principal shareholders in monthly installments over a period of four years from the date of the contract, with two exceptions: (1) Kessler was to be paid in full by October 15, 1961; (2) Neumann was to receive a substantial payment on account ($172,833.33) on August 1, 1961. The contract provided for all of the then officers and directors of Manz to resign. They did so resign and new officers and directors were elected by Lithographers on or about March 20, 1961.
Lithographers immediately on March 20, 1961 assumed full ownership and control of Manz, subject to a restriction against the sale or hypothecation of the assets of Manz stipulated in the contract. The restriction, in effect, prohibited the sale or hypothecation of the assets of the bankrupt unless one-half of the proceeds of the sale or loan were paid to the selling shareholders in part pre-payment of the sale price of their stock.
The new officers of the bankrupt were the same as the officers of Lithographers, and to all intents and purposes Lithographers was the parent of the bankrupt. The contract of March 20, 1961 vested full voting rights of shareholders in Lithographers.
Monthly payments as provided in the contract were made by Lithographers to the shareholders until August 1, 1961. At this time and prior thereto, Lithographers was in financial difficulty and was not paying its debts in the regular course of business. It was unable to pay the full installment of $172,833.33 due to Neumann on August 1, 1961 and paid only $50,000 on account. The balance of this installment was not paid to Neumann until October 16, 1961.
On October 4, 1961 the new officers of Manz (Roskin and Young) entered into an agreement with Armstrong for a secured loan of $1,000,000 in behalf of Manz. Of this, $500,000 was to be advanced to Manz, and $500,000 was to be held by the lender in escrow pursuant to special permission granted by two of the selling shareholders (Neumann and Moss) for the mortgaging of the assets of the bankrupt. The $500,000 withheld was to be turned over to the selling shareholders by Armstrong in the event of nonpayment of the loan by a designated date.
From the proceeds of the loan of $500,000, the bankrupt advanced $289,231.75 to Lithographers, which the latter used to pay the balance due to Neumann in the sum of $122,833.33 for the installment of August 1, 1961.
After the loan of October 4, 1961 negotiations were conducted between Armstrong and the bankrupt for a loan of approximately $2,500,000 to be made upon the property of the bankrupt. During said negotiations Armstrong required as conditions to the making of the loan (1) 100% of the shares of stock of Manz to be deposited with it as collateral; and (2) an exclusive contract for all of the accounts receivable financing, which would continue in effect so long as the bankrupt was indebted to Armstrong.
On October 31, 1961 the bankrupt signed a contract for the assignment of all of its accounts receivable to Armstrong. Under this arrangement Armstrong received copies of all invoices and received all the income generated by Manz and in return made advances to Manz in amounts solely determined by Armstrong.
On November 6, 1961 Manz, Lithographers and Armstrong entered into a written agreement whereby Lithographers assigned to Armstrong all of its interest in and to the contract of March 20, 1961 with the selling shareholders of Manz as collateral for the proposed loan. On November 6, all shares of stock of Manz paid for and acquired by that date were delivered to Armstrong by Lithographers. Armstrong thereby acquired all the interest and rights of Lithographers under the contract of March 20, 1961 and in the shares of stock of Manz covered by that contract. Armstrong also acquired the right to make the payments due on the contract of March 20 in the event of any default by Lithographers.
On December 14, 1961 Manz executed and delivered to Armstrong a trust deed transferring its real estate, a chattel mortgage transferring certain of its personal property (exclusive of inventory and work-in-progress) and a promissory note for $2,500,000 with interest at 12% per annum.
In consideration of these transfers and the...
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