In re Witt Dairy Co., 31799.

• Decision Date: 20 June 1942
• Docket Number: No. 31799.,31799.
• Citation: 48 F. Supp. 964
• Court: U.S. District Court — Northern District of California
• Parties: In re WITT DAIRY CO.

48 F. Supp. 964

In re WITT DAIRY CO.

No. 31799.

District Court, N. D. California, S. D.

June 20, 1942.

Grant H. Wren and Milton Newmark, both of San Francisco, Cal., for liquidating trustee.

Charles H. Sooy & Charles D. Sooy, of San Francisco, for debtor.

Esther B. Phillips, Asst. U. S. Atty., of San Francisco, Cal., for Collector of Internal Revenue.

Wayne R. Millington and Herbert Pothier, both of San Francisco, Cal., for M. R. Mattei.

Torregano & Stark and Charles M. Stark, all of San Francisco, Cal., for State Finance Co.

Fred G. Goldsworthy, of San Francisco, Cal., for California State Labor Commissioner.

Maurice R. Carey, of San Francisco, Cal., for Mercantile Bond Co.

S. T. Hogevoll, of San Francisco, Cal., for A. Grainger.

Harold E. Haven, of San Francisco, Cal., for Valley Creamery of San Jose et al.

Fabian D. Brown, of San Francisco, Cal., for California State Unemployment Commission.

H. D. Armstrong, of San Francisco, Cal., for Federal Reserve Bank of San Francisco and American Trust Co.

Robert M. Brown, of San Francisco, Cal., for Stanford University.

Harold E. Haven and Courtney L. Moore, both of San Francisco, Cal., for Albert Witt, Jr.

R. V. Bressni and M. Henry Robidoux, both of San Jose, Cal., for Rye Tractor & Equipment Co.

Thomas, Beedy & Paramore and Mark Coleman, all of San Francisco, Cal., for Mack International Motor Truck Corporation.

David Rubenstein and P. Paul Vlautin, Jr., both of San Francisco, Cal., for Edward Olden.

Charles R. Garry, of San Francisco, Cal., for Charles F. Witt, Walter Witt, and Albert Witt, Sr.

Brobeck, Phleger & Harrison, of San Francisco, Cal., for American Trust Co. and certain creditors.

Albert C. Agnew, of San Francisco, Cal., for Federal Reserve Bank of San Francisco and certain creditors.

Torregano & Stark, of San Francisco, Cal., for State Finance Co., and certain creditors.

Crist & Beene, of Palo Alto, Cal., for Harley M. Jenecke.

Andrew J. Eyman, of San Francisco, Cal., for Albert Witt, Sr.

Cooley, Crowley & Supple, of San Francisco, Cal., for Massachusetts Bonding & Investment Co.

Earl Warren, Atty. Gen., and James Arnerich, Deputy Atty. Gen., for W. B. Parker, Director of Agriculture of State of California.

Donald H. Smith, of San Francisco, Cal., for J. F. Serpa and Charles A. Prevost.

ST. SURE, District Judge.

Debtor, a co-partnership, filed its petition under Section 75 of the Bankruptcy Act, 11 U.S.C.A. § 203, on July 31, 1939. On February 5, 1940, this Court approved a plan whereby the co-partnership was dissolved and the assets of the co-partnership were delivered to the four individuals who had comprised it, to be retained by them unless they defaulted in the payment of the obligations of the co-partnership which they had assumed. In the event of such default the property was to revest in the Liquidating Trustee. A copy of the plan was mailed to all creditors and counsel. Notice was sent by the Conciliation Commissioner to all creditors and to all counsel interested, advising them of the confirmation of the plan by the Court, and advising them that from and after February 5, 1940 the individuals who had comprised the co-partnership would manage and operate the businesses of the co-partnership as separate businesses, exclusively and solely for their own account alone.

On July 6, 1940, Albert Witt, Jr., one of the co-partners, defaulted in the payments which he had agreed to make, and on November 18, 1940, this Court found that Albert Witt, Jr., was in default as of July 6, 1940, and directed him to surrender to the Liquidating Trustee the assets which had been turned over to him by the debtor co-partnership. This order also provided that moneys and property coming into the hands of the Liquidating Trustee should not be paid out or disposed of without further order of this Court.

On March 1, 1941, certain persons filed a petition claiming to have furnished labor, services, merchandise and supplies to Albert Witt, Jr. between February 5, 1940, and November 18, 1940, while he was "authorized as a Trustee or Receiver of the above entitled Court to operate and conduct the aforesaid business", alleging that said labor, etc., had not been paid for. The petition prayed that an order of the Court be made establishing these claims as first liens against the funds in the hands of the Liquidating Trustee.

On April 17, 1941, answer was made by the Liquidating Trustee denying the allegations of the petition.

On the same date this Court referred the matter to a Special Master, and ordered that all of the alleged creditors of the above named debtor whose claims accrued between February 5, 1940, and November 18, 1940, should present their claims to the Special Master.

On July 11, 1941, a report on these claims was filed finding that on February 5, 1940, the debtor's amended plan under which the co-partnership was dissolved, had been confirmed, and that thereafter the individuals comprising the co-partnership operated the respective businesses as their separate businesses; that the notice of the Conciliation Commissioner, referred to above, had been sent to the creditors and counsel; and that the claims accruing between February 5, 1940, and November 18, 1940, were not debts of the co-partnership.

The Special Master's Certificate and Report relative to all claims filed against the debtor, dated April 9, 1942, did not classify these claimants as creditors of the estate. He bases his reasons for not doing so upon the grounds that the persons dealing, between these dates, with the former members of the co-partnership, dealt with them as individuals and not as debtor representatives under the direction of the Court; that the property of the debtor had been vested in the individuals that had comprised the co-partnership, subject to being revested in the debtor in the event of a default in the payment of the debts assumed by the individuals formerly comprising the co-partnership; that any person who had notice of the pendency of this proceeding had ample means of knowing how said individuals were operating, and one who did not have notice of these proceedings could not have been led to believe that any of the individuals were representing the debtor, or its estate, or operating under the jurisdiction of this Court.

The Report further found that by its order of November 18, 1940, the Court retained jurisdiction generally of the debtor in order to enforce property rights which might accrue because of the failure of an individual to perform a condition subsequent, and denied the petition of these claimants without prejudice to their right to offer proof that the Liquidating Trustee had in his hands some definite amount of money or property which never belonged to the debtor or its estate prior to its petition under Section 75 of the Bankruptcy Act, 11 U.S.C.A. § 203; and denied counsel fees to claimants.

Claimants object to the findings of the Special Master upon three grounds: (1) That the Court exceeded its power in appointing a Liquidating Trustee, as provision for such an officer is not made under Section 75 of the Bankruptcy Act, 11 U.S. C.A. § 203; (2) that claimants are entitled to be classified as class one creditors by virtue of Sections 64, subds. a (1) and b of the Bankruptcy Act, 11 U.S.C.A. § 104, subds. a (1) and b; (3) that all of the property revested in the Liquidating Trustee was not property of the debtor, and that the claimants should be allowed to trace the property that was not the property of the debtor at the time of the filing of its petition, or which increased the assets of the estate, and recover it from the debtor.

(1) The contention by the claimants that the Court exceeded its power in appointing a Liquidating Trustee is answered by the case of In re Armold, 7 Cir., 83 F.2d 530, at page 531, where the Court said:

"Appellant erroneously assumes that the court had no power to appoint a receiver under amended section 75. Under this section the power of the court over the bankrupt's property is almost unlimited in preserving and protecting it for the best interests of both the debtor and the creditors. See subsections (e), (n), (p), and (s), § 75, as amended (11 U.S.C.A. § 203 (e, n, p, s). Grave duties and responsibilities are thereby laid upon the court, and we see nothing in the law to prevent it from performing those duties and meeting those responsibilities with the aid of receivers, custodians or any other officers of the court, whenever occasion demands it. It would be a physical impossibility for a judge of the court personally to attend to all such duties, and we know of no enactment of Congress which indicates such requirement."

(2) Claimants urge that Congress intended, in enacting Section 64, sub. b of the Bankruptcy Act, 11 U.S.C.A. § 104, sub. (b),¹ to provide security and priority for new creditors when a confirmation plan was set aside for a debtor's default, because the old creditors participated with the debtor in the formulation of the plan, such participation allowing the debtor to secure new creditors. They claim that when the old creditors consented to this plan they consented to the transfer of the assets of the Witt Troutmere Dairy to Albert Witt, Jr., and the continuation of the business; therefore, the old creditors acquiesced in the essential and usual way of operating a business, to wit: on credit, and they are now estopped to claim...