Jordan v. Independent Energy Corp., No. CA3-76-1309-F.

• Court: United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Northern District of Texas
• Citation: 446 F. Supp. 516
• Docket Number: No. CA3-76-1309-F.
• Parties: Harold T. JORDAN et al. v. INDEPENDENT ENERGY CORPORATION, Sanford Dvorin and Patricia Dvorin. INDEPENDENT ENERGY CORPORATION v. CENTURY NATURAL GAS CORPORATION.
• Decision Date: 22 March 1978

446 F. Supp. 516

Harold T. JORDAN et al.
v.
INDEPENDENT ENERGY CORPORATION, Sanford Dvorin and Patricia Dvorin.
INDEPENDENT ENERGY CORPORATION
v.
CENTURY NATURAL GAS CORPORATION.

No. CA3-76-1309-F.

United States District Court, N. D. Texas, Dallas Division.

January 26, 1978.

As Corrected March 22, 1978.

446 F. Supp. 517

COPYRIGHT MATERIAL OMITTED

446 F. Supp. 518

Joel Held, Durant, Mankoff, Davis & Wolens, Dallas, Tex., for plaintiff

John O. Jones, Mike Riddle, Baker, Glast, Riddle & Tuttle, Dallas, Tex., for defendant Independent Energy Corp.

Glenn E. Heatherly, Rhodes, Doscher, Chalk & Heatherly, Abilene, Tex., for third party defendant Century Natural Gas Corp.

Richard N. Currin, Bruner, Dorfman, Currin, Matlock & Hardin, Dallas, Tex., for temporary receiver.

Fred Bruner, Bruner, Dorfman, Currin, Matlock and Hardin, Dallas, Tex., General Counsel, for temporary receiver.

Kenneth J. Mighell, U. S. Atty., and Stafford Hutchinson, Asst. U. S. Atty., Dallas, Tex., for Internal Revenue Service.

Arch A. Beasley, Biggers, Lloyd, Biggers, Beasley & Amerine, Dallas, Tex., for General Motors Acceptance Corp.

Daniel C. Stewart, Thompson, Knight, Simmons & Bullion, Dallas, Tex., for petitioning creditors in bankruptcy.

ROBERT W. PORTER, District Judge.

This case resolves a question of first impression in this circuit¹ by deciding under

446 F. Supp. 519

what conditions a federal district court may prevent the filing of a voluntary or involuntary petition in bankruptcy by the issuance of a federal blanket receivership injunction.² Plaintiffs Harold T. Jordan, Philip C. Bangle, James A. Fauci and Richard F. Julius filed this action in Dallas against defendant Independent Energy Corporation (hereinafter "IEC") on September 29, 1976 alleging violations of § 17(a) of the Securities Act of 1933, as amended, 15 U.S.C. § 77q(a) and § 10(b) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78j(b) and Rule 10b-5 thereunder (17 C.F.R. 240.10b-5).³

Plaintiffs allege in their complaint that IEC defrauded the plaintiffs in the sale of fractional undivided interests in oil and gas leases in Young County, Texas. IEC allegedly prepared and distributed to the plaintiffs inaccurate and incomplete reports on the progress and status of IEC's wells and diverted gas produced from wells subject to plaintiffs' leases for the use and benefit of others. Plaintiffs sought a preliminary injunction and final judgment enjoining IEC's operation and development of certain wells, requiring an accounting by IEC, rescinding the sale to plaintiffs of certain fractional undivided interests in some wells and granting the appointment of a receiver to manage IEC. This court entered a partial judgment and preliminary injunction on December 8, 1976 rescinding plaintiff Jordan's purchase of fractional shares in some wells, restricting the disbursement of IEC's funds and property, requiring the appointment of an operator of the leasehold interest and appointing an accounting firm to audit IEC's accounts at IEC's expense.

An amended complaint adding additional defendants and asserting a class action under the provisions of Rule 23 of the Federal Rules of Civil Procedure was filed on January 19, 1977.⁴ On February 4, 1977, plaintiffs

446 F. Supp. 520

moved this court to appoint a temporary receiver for defendant IEC and to grant to the receiver all powers, rights, privileges and duties necessary to take control of all of IEC's business operations and assets. This court appointed a temporary receiver of IEC in its order of February 23, 1977, and stayed all persons, firms or corporations from "commencing, prosecuting, continuing or enforcing any suit or proceeding, or from executing or issuing or causing the execution or issuance of any court attachment . . . or other proceedings for the purpose of impounding or . . . interfering with any property owned by or in the possession of defendant . . ."⁵

Counsel for various trade creditors of IEC informed the court on June 20, 1977 that these creditors wished to file an involuntary petition in bankruptcy against IEC in the bankruptcy court in Dallas by June 23, 1977. Counsel acknowledged that the language of the court's stay order of February 23, 1977 might preclude the filing of an involuntary petition in bankruptcy. The court orally permitted the filing of a petition in bankruptcy on the condition that the case not be prosecuted in the bankruptcy court until this court had had an opportunity to decide whether the blanket receivership injunction stayed the petitioning creditors and IEC from filing or pursuing bankruptcy proceedings.⁶

446 F. Supp. 521

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446 F. Supp. 522

A creditor's petition for bankruptcy was filed on June 23, 1977 with the bankruptcy court.⁷ On July 13, 1977, alleged bankrupt IEC filed its answer to this

446 F. Supp. 523

petition, admitting that the corporation owed its creditors $1,000.00 or more and that a temporary receiver had been appointed on February 23, 1977 but denying that IEC was insolvent or unable to pay its debts as they matured at the time of the receiver's appointment. Alleged bankrupt IEC also sought to proceed under the voluntary rehabilitation provisions of Chapter XI of the Bankruptcy Act if the bankruptcy court found that IEC was unable to pay its debts as they matured or was insolvent at the time of the alleged act of bankruptcy.⁸

446 F. Supp. 524

This court must decide the following questions:

(1) Did this court's stay order of February 23, 1977 enjoin all creditors of IEC from filing an involuntary petition in bankruptcy and restrain IEC from filing a voluntary petition in bankruptcy under the provisions of Chapter XII?

(2) If the stay order enjoined the filing of an involuntary petition in bankruptcy against IEC or IEC's voluntary Chapter XI proceeding, have the creditors established good cause for lifting the blanket receivership injunction to permit them to proceed with the bankruptcy proceedings?

The language of this court's order of February 23, 1977 appointing a temporary receiver enjoins all persons "from in any way disturbing the possessions of the receiver and from prosecuting any action which affects the property of the receivership company or companies."⁹ The filing of a Chapter XI voluntary bankruptcy petition by IEC would interfere with the receiver's possession of IEC's assets by restraining the receiver from further action in a receivership proceeding. Bankruptcy Act § 2, 11 U.S.C. § 11; Bankruptcy Rule 401.¹⁰

IEC's filing of the voluntary petition in bankruptcy under the provisions of Chapter XI in answer to the creditor's petition for bankruptcy violates this court's stay order.

The court's order states that a creditor of IEC cannot file any action which would interfere with the receiver's possession of the property and assets owned by IEC.¹¹ The filing of a creditor's petition for bankruptcy interferes with the receiver's possession of IEC's property by restraining the receiver from further action in the receivership proceeding. Bankruptcy Act § 2, 11 U.S.C. § 11; Bankruptcy Rule 401.¹² Filing of the creditor's petition violates this court's stay order.

Early state and federal court decisions addressed the question of whether the pendency of a receivership proceeding or

446 F. Supp. 525

the issuance of an injunction ancillary to a receivership proceeding could preclude the filing of a petition in bankruptcy. Collier's Treatise on Bankruptcy indicates that the courts uniformly held that the pendency of an equity receivership proceeding in a federal district court would not by itself prevent a corporation from filing a voluntary petition in bankruptcy, 1 Collier, Bankruptcy, 405 at 586,¹³ and the pendency of a receivership proceeding in a state court could not prevent a corporation from filing for bankruptcy voluntarily. 1 Collier, Bankruptcy, 405, at 586.¹⁴

The state and federal courts could not agree on whether an injunction issued in conjunction with a receivership proceeding staying the filing of all other actions involving receivership property could effectively preclude the filing of a voluntary bankruptcy proceeding or a creditor's involuntary petition for bankruptcy.¹⁵ The cases discussing the conflict between a federal blanket receivership injunction and the filing of a voluntary or involuntary petition in bankruptcy rely upon the underlying purpose of the Bankruptcy Act or Congressional intent when concluding that a federal district court may not enjoin access to the bankruptcy courts. The courts reason that Congress, in § 4(a) and (b) of the Act, meant that all persons should have access to the bankruptcy courts restricted only by the conditions specifically listed in the Bankruptcy Act and that § 2(a)(21) of the Act supports this broad interpretation of bankruptcy court power.¹⁶

One federal district court held in In re E. C. Denton Stores, Company, 5 F.Supp. 307, 310 (S.D.Ohio 1933) appeal dism'd 97 F.2d 999 (6th Cir. 1938) that "(t)he fact that a corporation requests, consents to, or participates in a equity receivership in respect to its corporate property, in which the usual injunction issued, will not of itself preclude the corporation's subsequently to file a voluntary petition in bankruptcy." The court relied on In re Watts & Sachs, 190 U.S. 1, 23 S.Ct. 718, 47 L.Ed. 933 (1902) to support its holding that in matters of bankruptcy the jurisdiction of the federal court is essentially exclusive.¹⁷

446 F. Supp. 526

The American & British Securities Co. commenced an equity action in a New York Federal District Court in February, 1921 to conserve the corporation's assets. In re American & British Manufacturing Corp., 300 F. 839 (D.C.Conn.1924). The court appointed a receiver and thereafter the company was adjudicated a bankrupt upon its voluntary petition. On December 5, 1923, a creditor's petition was filed to have the adjudication vacated on the ground, among others, that the...