IN THE MATTER OF RICE BARTON CORPORATION

• Decision Date: 13 May 1970
• Docket Number: No. 69-834.,69-834.
• Citation: 312 F. Supp. 1316
• Parties: In the Matter of RICE BARTON CORPORATION, Debtor.
• Court: U.S. District Court — District of Massachusetts

312 F. Supp. 1316

In the Matter of RICE BARTON CORPORATION, Debtor.

No. 69-834.

United States District Court, D. Massachusetts.

May 13, 1970.

Frederick G. Fisher, Jr., Hale & Dorr, Boston, Mass., for debtor.

Sidney J. Kagan, Richmond, Rosen & Kagan, Boston, Mass., counsel for receivers.

Richard M. Simonian, Worcester, Mass., Moulton, Looney, Mazzone, Falk & Markham, Boston, Mass., Harry Pollack, Boston, Mass., for Creditors.

OPINION

CAFFREY, District Judge.

This is a civil action which was referred to Referee Edwin F. Hannon as Special Master upon the application of Dynation Corporation, a creditor. The matter came before the Court upon objections to the report of the Special Master filed by Dynation Corporation pursuant to the provisions of Section 328 of the Bankruptcy Act (11 U.S.C. § 728). The following facts were found by the Special Master:

On July 14, 1969, the debtor herein filed a petition for an arrangement under the provisions of Chapter XI of the Bankruptcy Act. On the same day the matter was assigned to Referee Hannon, who appointed three disinterested persons as Receivers. Thereafter, the Receivers employed as counsel a Boston law firm which is experienced in bankruptcy and other types of business practice. The Receivers also employed a certified public accountant to cooperate with them and the law firm in conducting an investigation of the affairs of the debtor, in administering the estate, and in arriving at a conclusion as to whether any plan of arrangement might be proposed which was fair, adequate, feasible, and in the best interests of the creditors.

Pursuant to a notice sent by the debtor to all creditors, a creditors' meeting was held on July 18, 1969 at the Holiday Inn, Worcester, Massachusetts. In excess of 100 individuals were present at the meeting, at which a Creditors' Committee of fifteen individuals was appointed. Thereafter, nine meetings of the full Creditors' Committee were held and, in addition, meetings of a sub-committee known as the Committee on Finance were held. On November 7, 1969, a notice was mailed to creditors of a meeting on November 19, 1969 before Referee Hannon, which notice advised that hearing on confirmation and objections thereto would be held at 2:00 p.m. that day. At the 2:00 p. m. hearing, Dynation, through its counsel, argued before Referee Hannon the grounds on which it contended that the proceedings should have been brought under Chapter X rather than Chapter XI of the Bankruptcy Act. Referee Hannon also heard objections of Dynation to the debtor's plan of arrangement as modified, as well as arguments in favor of confirmation of the amended plan.

Referee Hannon held a further hearing on November 21, 1969, at which Dynation failed to introduce any evidence, but did argue through counsel in support of its application under Section 328 of the Bankruptcy Act. On November 24, 1969, an order confirming the arrangement and, in effect, refusing to transfer it to a proceeding under Chapter X, was entered by Referee Hannon.

Dynation filed an application under Section 328 on November 17, 1969, seeking an order of the court dismissing the proceedings under Chapter XI, seeking an injunction against the November 19, 1969 hearings held by Referee Hannon (no injunction ever issued), and also seeking an order that its application was properly filed in good faith pursuant to the provisions of Chapter XI of the Act.

Referee Hannon filed his report as Special Master on January 15, 1970 and Dynation filed objections thereto on February 5, 1970. A hearing on those objections was held by this Court on March 9, 1970. At this hearing counsel for Dynation again failed to offer any evidence, by affidavit or otherwise, in support of its objections.

In reviewing the report of the Special Master, his findings of fact are not to be set aside by this Court unless they are clearly erroneous. General Order 47; 5 Moore's Federal Prac., 53.12 (4). A review of the limited amount of evidence available to this Court affords no basis for a finding that the facts found by the Special Master are clearly erroneous.

The legal considerations deemed apposite in reviewing a case of this type are adumbrated by the Supreme Court in SEC v. American Trailer Rentals, 379 U.S. 594, 85 S.Ct. 513, 13 L.Ed.2d 510 (1965), and are made specific by the Court of Appeals for this Circuit in Schreibman v. Mason, 377 F.2d 99 (1967), where the court indicated that the district judge should have in mind:

(1) that Chapter X was enacted for the protection of public investors rather than trade creditors;

(2) that the reliability of the Special Master's findings depends, in part, upon whether he considered the guidelines reaffirmed by the Court in American Trailer Rentals; and

(3) that whether Chapter X or Chapter XI is appropriate depends upon the "needs to be served," which, in turn, requires consideration of:

(a) fairness to public debt holders;

(b) the number or character of the investors, and how widespread geographically they are;

(c) whether the stock is offered or sold to the public generally;

(d) whether a trustee should evaluate the need for an accounting from management;

(e) whether a trustee should evaluate the need for new management;

(f) whether there is a complicated debt structure requiring more than the simple composition available under Chapter XI.

See also, Securities and Exchange Comm. v. United States Realty & Improvement Co., 310 U.S. 434, 60 S.Ct. 1044, 84 L.Ed. 1293 (1940); General Stores Corp. v. Shlensky, 350 U.S. 462, 76 S.Ct. 516, 100 L.Ed. 550 (1956); In re American Guaranty Corp., 246 F.Supp. 322 (D.R.I., 1965); Securities and Exchange Comm. v. Burton, 342 F.2d 783 (1 Cir., 1965).

With regard to point (1) above, the court is well aware that Chapter X was enacted for the protection of public investors rather than trade creditors, and that awareness is material in light of the fact that the Special Master found that of the 30,000 shares of Rice Barton Corporation outstanding, some 90% are held by the Barton family, in light of the further fact that the Special Master...