In re Securities Investor Protection Corp., 4-73 Civ. 212.

• Citation: 414 F. Supp. 679
• Decision Date: 26 November 1975
• Docket Number: No. 4-73 Civ. 212.,4-73 Civ. 212.
• Parties: In re SECURITIES INVESTOR PROTECTION CORPORATION, Applicant. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. J. SHAPIRO CO., Defendant.
• Court: United States District Courts. 8th Circuit. United States District Court of Minnesota

414 F. Supp. 679

In re SECURITIES INVESTOR PROTECTION CORPORATION, Applicant.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. J. SHAPIRO CO., Defendant.

No. 4-73 Civ. 212.

United States District Court, D. Minnesota, Fourth Division.

November 26, 1975.

Peter Hendrixson, Dorsey, Marquart, Windhorst, West & Halladay, Minneapolis, Minn., for appellant.

Jeffrey R. Schmidt, Lindquist & Vennum, Minneapolis, Minn., for trustee.

Theodore H. Focht and Michael E. Don, Washington, D.C., for SIPC.

ORDER

MILES W. LORD, District Judge.

This matter comes before this Court on the petition of Ms. JoAnn Phillips, for review of an Order of the Referee in Bankruptcy dated October 18, 1974.

Ms. Phillips appeals the denial of her claim to 10,000 shares of Love Oil stock, or the value thereof and 50 shares of Dairene Industries, Ltd., or the value thereof.

On July 23, 1974, a hearing was held before Referee and Special Master Kenneth G. Ownes on an objection by the trustee J. Shapiro Co. to the claim by JoAnn Phillips. There was testimony by several witnesses; numerous exhibits were offered and admitted into evidence. At the request of Referee Owens, memoranda were submitted by counsel for the claimant and for the trustee in support of their respective positions. The Securities Investor Protection Corporation also submitted a memorandum in support of the trustee's disallowance of the Phillips' claim.

On October 18, 1974, Referee Owens, by memorandum order (see Appendix), ruled that Phillips' claim to 50 shares of Dairene Industries, Ltd. and 10,000 shares of Love Oil, Inc. was "time-barred". He allowed only Phillips' claim to 450 shares of Dairene, which was liquidated by the trustee.

On November 14, 1974, Phillips filed and served a Notice of Appeal appealing the Referee's order to this Court. In connection with this appeal, Phillips designated certain material as her record on appeal, including all contents of the record before the Referee, with exhibits, the Order of the Referee and its accompanying Memorandum of Facts and Law. The factual record on appeal is taken from the Referee's memorandum and from an additional stipulation entered into among the parties, referred to in appellate's Designation of Record on Appeal and Statement of Issues, and attached to it as exhibit A.

Pursuant to Bankruptcy Rule 810, 28 U.S.C.A. (effective October 1, 1973), the Court must accept the Referee's findings of fact unless they are "clearly erroneous," but can otherwise adopt, modify or reject the Referee's Report or any part thereof.

With these standards in mind, the Court has considered the records, proceedings and all other files herein, including the opposing briefs on the issues. Thus, being fully advised in the premises and it appearing to the Court that the Referee's findings of fact are not clearly erroneous, and that he correctly applied the law, his decision must be affirmed.

While it appears to this Court that the disallowance of Ms. Phillips' claim is not an equitable result, it appears to be mandated by the statutory time limit of six months set for the filing of claims (15 U.S.C. § 78fff(e). The Referee has more faith then does this Court in the ability of the post office to deliver the mail. However, the procedure for mailing notice of the proceedings by first class mail appears to be an acceptable procedure when balanced with the additional costs of other methods of notice. Finally, in this case the Referee found as fact that the "testimony of non-receipt was wholly insufficient to negate such mailing".

Under these circumstances, this Court is reluctantly compelled to affirm the decision of the Referee.

ORDERED, ADJUDGED AND DECREED That the Order of the Referee be affirmed.

APPENDIX

MEMORANDUM ORDER OF OCTOBER 18, 1974

KENNETH G. OWENS, Referee and Special Master:

An evidentiary hearing was held before me on July 24, 1974, on the objection of the trustee, William T. Dolan, to the customer claim filed in this proceeding by JoAnn Phillips. Jeffrey R. Schmidt appeared as attorney for the trustee, and Peter S. Hendrixson as attorney for the claimant. Following hearing briefs were submitted by all interested parties and the matter is now ready for decision.

THE PROCEEDING

This is a liquidation proceeding in the matter of the brokerage firm of J. Shapiro Co. (hereafter "Shapiro") pursuant to Section 6 of the Securities Investor Protection Act of 1970 (15 U.S.C.A. § 78fff) with reference to the undersigned as special master. Section 6(e) of the Act (78fff(e)) provides among other things for the giving of notice, as follows:

(e) Notice.—Promptly after his appointment, the trustee shall cause notice of the commencement of proceedings under this section to be published in accordance with a designation of the court, made in accordance with the requirements of section 51 of Title 11, and at the same time shall cause to be mailed a copy of such notice to each of the customers of the debtor as their addresses shall appear from the debtor's books and records. Except as the trustee may otherwise permit, claims for specifically identifiable property (other than securities registered in the name of the claimant or segregated for him in his individual name) or claims payable from property in the single and separate fund or payable with moneys advanced by SIPC, shall not be paid other than from the general estate of the debtor unless filed within such period of time (not exceeding sixty days after such publication) as may be fixed by the court, and no claim shall be allowed after the time specified in section 93 of Title 11. Subject to the foregoing, and without limiting the powers and duties of the trustee to discharge promptly obligations as specified in this section, the court may make appropriate provision for proof and enforcement of all claims against the debtor including those of any subrogee.

Soon after appointment the trustee obtained from the computer company (SICOMP) which had maintained Shapiro customer account lists and records, a master list of the some 35,000 present and former customers of Shapiro, including that of claimant.

The court approved a form of notice giving information of the commencement of the proceeding and informing customers of the necessity to complete and return a proof of claim form to the trustee within sixty days, or by July 2, 1973. The notice also included advice to all other creditors of the debtor that such claims must be filed within six months after the first date set for the first meeting of creditors, and "No claim of any kind will be allowed unless filed within said six months period."

The trustee promptly caused the notice to be published as designated by the court and by direction to SICOMP caused a copy of claim form and notice to be mailed to each of the individuals named on the master list by metered first class mail. The envelopes were machine addressed, and SICOMP employees verified the count of envelopes against the count of names on the master list. In addition, the trustee further verified the count by match of the total postage meter amounts against the total number of customers. No envelope addressed to claimant was returned by the postoffice to the trustee. While as mentioned hereafter claimant disputes receipt of such mailing I am satisfied that an individual letter was addressed and mailed to her and that the showing is insufficient to negate the inference of delivery.

The time to file customer claims was at the instance of the trustee twice extended, first to August 1, 1973, and then to January 9, 1974, a date six months after the first meeting of creditors. Without affecting claims generally, but only as to claims of customers to securities physically segregated or registered in customer name a final bar date, May 3, 1974, was subsequently fixed by order.

THE CLAIM

The Phillips' claim was received by the trustee on February 22, 1974, after expiration of the claim filing period, but prior to the bar date for securities physically segregated or registered in customer name. The claim listed and claimed entitlement to 10,000 shares of Love Oil Inc., 500 shares of Dairene Industries, Ltd., and a cash position of $839.25. The Shapiro records, including the customer statement as of March 30, 1973 showed no cash balance but a security position of 500 shares Euro Industries, Ltd., and 10,000 shares Love Oil Inc.

The hearing demonstrated and claimant concedes that she received payment of the cash balance from Shapiro prior to liquidation. The trustee concedes that the books show security positions as indicated, and since he has found 450 shares of Dairene Industries, Ltd. (formerly named Euro Industries, Ltd.) concedes the entitlement of claimant to that property on a valid claim filed prior to May 3, 1974. Accordingly, there remains at issue the claim to 50 shares of Dairene Industries, Ltd. and 10,000 shares of Love Oil Inc., which the trustee contends is time barred.

OTHER FACTS

Claimant opened her account at Shapiro in 1972 upon the advice of Wally Karbo. She had no substantial knowledge of securities and whatever correspondence or documents she received from Shapiro she simply turned over to Mr. Karbo for his...