In re Woody

• Decision Date: 04 January 1966
• Docket Number: No. 23807.,23807.
• Citation: 248 F. Supp. 855
• Parties: In the Matter of Roby C. WOODY, d/b/a Woody Motor Company, Bankrupt.
• Court: U.S. District Court — Western District of Missouri

248 F. Supp. 855

In the Matter of Roby C. WOODY, d/b/a Woody Motor Company, Bankrupt.

No. 23807.

United States District Court W. D. Missouri, W. D.

January 4, 1966.

Popham, Thompson, Popham, Trusty & Conway, Kansas City, Mo., for bankrupt.

Phineas Rosenberg, Kansas City, Mo., for trustee.

Julius F. Wall, Poague, Brock & Wall, Clinton, Mo., John G. Killiger, Kansas City, Mo., for First National and Farmers Bank.

Kuraner, Oberlander, Lamkin, Dingman & O'Laughlin, Kansas City, Mo., for Commercial Credit Corp.

JOHN W. OLIVER, District Judge.

Four petitions for review pend in this case. Each petition for review is separate from the others although all relate to orders entered in the same bankruptcy proceeding. Separate judgments on our decisions in regard to each petition for review will be entered in accordance with Rule 58 of the Rules of Civil Procedure.

In connection with all four petitions and before detailed study of the various petitions for review, we made inquiry of counsel as to whether any party wished, pursuant to the authorization of General Order in Bankruptcy No. 47, to adduce any further evidence or to have any further hearing in connection with any of the four petitions for review.

Counsel for all parties advised us that no further hearing was desired by any party and that all parties wished to have each petition for review submitted on the stipulations, evidence, and briefs filed before the Referee as supplemented by briefs filed in this Court.

Three of the petitions for review will be decided on the merits; the fourth must be recommitted to the Referee with instructions for reasons that we shall state in detail in part IV of this memorandum opinion.

I. Petition For Review Filed by Various Claimants

Most of the facts involved in this petition for review were stipulated. Additional testimony was heard by the Referee. On the basis of all the evidence the Referee made a specific finding that:

1. The above named claimants (hereinafter called joint-owners), except as herein otherwise found, are not creditors of the bankrupt but at all times mentioned here are and were joint-venturers and investors in bankrupt's business as participants in a joint enterprise with bankrupt and have no allowable claim as creditors in this estate and have no right of set-off.

Additional findings concerning the history of each claimant's involvement with the bankrupt were detailed and in paragraph 5 of his order the Referee found and held that:

5. A summary of the transactions between the bankrupt and said joint-owners under the `Automobile Purchase Agreement' is that (in addition to the aforesaid payments in money and participation rights) bankrupt agreed to `sell' each joint-owner a new automobile each year in exchange for his old car, for which the joint-owner was to pay bankrupt only the sum of $1.00 over and above the trade-in value of the old car, plus an additional sum to cover the cost of transfer, extra equipment furnished the new car or extra charge for change in car model, but nothing more.

These car transactions were pretended sales for a pretended purchase price which were calculated to, and did, result in bankrupt suffering substantial losses to the detriment of creditors. The exchange of an old car for a new automobile each year for the sum of $1.00 resulted in the joint-owner getting a new car or cars each year for less than the actual factory cost of the new automobile. The losses sustained thereby benefited the joint-owners and depleted bankrupt's assets in fraud of the rights of general creditors. These car exchanges were fraudulent and void preferences, obligations, transfers and conveyances by bankrupt while insolvent to persons interested in bankrupt's business as joint-owners therein when such persons knew or had reasonable cause to know that bankrupt's business was insolvent. By the aforesaid transactions, said joint-owners abstracted, transferred and conveyed to themselves and away from the general creditors bankrupt's money and property and thereby depleted bankrupt's assets and estate for their personal benefit at the expense of the creditors. Said losses are set forth in the separate finding made, infra,

with respect to each separate claim.

The claims of the petitioners for review were disallowed and each claimant, or his successor in interest, was ordered to turn over the moneys paid each during bankrupt's stipulated insolvency and each was required to reimburse the estate for the amount of the loss suffered by the bankrupt on the various car trades involved. Such order either wiped out or subordinated the entire claims of all claimants.

The first question presented in the Referee's certificate is stated as follows:

1. Whether such claimants are not creditors of bankrupt but at all times shown by the evidence and as found by the Referee are and were joint-venturers and investors in bankrupt's business as participants in a joint enterprise with bankrupt, and thus have no allowable claims as creditors and have no right of set-off.

That question, as do the other two questions involved in this petition for review that need not be quoted, obviously involves a question of fact.

In In re Cox, W.D.Mo. 1965, 244 F. Supp. 430 at 433, we set forth at length our duties as a reviewing court under General Order in Bankruptcy No. 47. We here incorporate what we said there by this reference.

We believe, however, that a word should be added to what we said in In re Cox because it has been suggested in some of the briefs filed in this case that inferences drawn by the Referee from stipulated or undisputed facts are not within the scope of the clearly erroneous rule. What we shall say in addition to what we said in In re Cox is applicable to all of the petitions for review now before us and shall be so considered by all parties.

In In re Cox attention was directed primarily to the standard and scope of our review of findings of fact made by a Referee in Bankruptcy. We there noted that "both Rule 52(a) of the Rules of Civil Procedure and General Order No. 47 contain the same `clearly erroneous' standard" (244 F.Supp. at 434). We added that the "standard of review" to be applied by the District Court in its determination of whether the findings of fact of a Referee are "clearly erroneous" is the same "standard of review as that provided by the same `clearly erroneous' language of Rule 52(a) as explained by the Supreme Court cases to which we have referred" (244 F.Supp. at 435).

In In re Cox, among other Supreme Court cases, we directed attention to United States v. United States Gypsum Co., 333 U.S. 364 at 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948), and to Commissioner of Internal Revenue v. Duberstein, 363 U.S. 278 at 291, 80 S.Ct. 1190, 4 L.Ed.2d 1218 (1960). We did not quote in In re Cox what the Supreme Court said in those cases about inferences being within the "clearly erroneous" standard of review. We now quote the teaching of those cases in order that our view of the standard that must be applied by a District Court to inferences drawn by a Referee in his findings of fact be in the books.

Both Gypsum Co. and Duberstein expressly held that the clearly erroneous standard was applicable to and included inferences drawn from the facts as found by the trier of the facts. Gypsum held that "in so far as this finding and others * * * are inferences drawn from documents or undisputed facts * * * Rule 52(a) of the Rules of Civil Procedure is applicable" (333 U.S. at 394, 68 S.Ct. at 541).

And Duberstein held that "the rule * * * applies * * * to factual inferences from undisputed basic facts * * * as will on many occasions be presented in this area" (363 U.S. at 291, 80 S.Ct. at 1200).

We think it obvious that if the identical "clearly erroneous" standard of review language in General Order in Bankruptcy No. 47 is read more narrowly than the "clearly erroneous" standard of review language in Rule 52(a) of the Rules of Civil Procedure a District Court would be required to make a de novo review of all orders of a Referee that are based on inferences drawn by him from stipulated or undisputed factual situations.

We held by implication in In re Cox that such was not the purpose or intent of General Order in Bankruptcy No. 47.

We now make clear by adding to what we implied but did not expressly state in In re Cox that we believe that a District Court is required by General Order in Bankruptcy No. 47 to accept all factual inferences that a Referee may make in a particular case from stipulated or undisputed basic facts unless such inferences are found to be "clearly erroneous." We further believe that the meaning to be given the "clearly erroneous" standard of review language is that stated in the cases construing both General Order in Bankruptcy No. 47 and Rule 52(a) of the Rules of Civil Procedure to which we have referred in this case and in In re Cox.

What we have here added to what we said in In re Cox is, of course, applicable to all the petitions for review that are now before us and shall be so considered by the parties.

Our examination of the evidence in connection with the Various Claimants' petition for review convinces us that the Referee's findings of fact and the inferences drawn from those are supported by substantial evidence and that we cannot say on that record that such findings are "clearly erroneous" within the meaning of General Order in Bankruptcy No. 47. We further determine that the Referee correctly applied the law to the facts as he found them. See and compare the rationale of Pepper v. Litton, 308 U.S. 295 at 303, 60 S.Ct. 238, 84 L.Ed. 281 et seq. (1939).

Accordingly, the order of the Referee of May 28, 1964, the subject of the Various Claimants' petition for review, should be and is hereby adopted and confirmed. The Clerk shall enter a separate judgment in accordance with Rule 58 of the Rules of Civil Procedure.

II. Petition for Review Filed by First National...