Kimm v. Cox

• Decision Date: 08 September 1942
• Docket Number: No. 12001.,12001.
• Citation: 130 F.2d 721
• Parties: KIMM et al. v. COX et al.
• Court: U.S. Court of Appeals — Eighth Circuit

130 F.2d 721 (1942)

KIMM et al. v. COX et al.

No. 12001.

Circuit Court of Appeals, Eighth Circuit.

September 8, 1942.

COPYRIGHT MATERIAL OMITTED

Seth Lundquist, of Minneapolis, Minn. (D. J. Shama, of Minneapolis, Minn., on the brief), for appellants.

Benedict Deinard, of Minneapolis, Minn. (Oscar A. Brecke, of Minneapolis, Minn., on the brief), for appellees.

Before STONE, WOODROUGH, and JOHNSEN, Circuit Judges.

STONE, Circuit Judge.

This appeal and three other appeals (No. 12,002, 130 F.2d 687, No. 12,003, 130 F.2d 691, and No. 12,004, 130 F.2d 695) are concerned with the bankruptcy of the Calhoun Beach Club Holding Company, a Delaware corporation. Each of these appeals has to do with a separate order in that proceeding. This appeal is from an order (January 2, 1941) denying a petition by four creditors for the removal of the trustee in bankruptcy (Harold W. Cox) and his attorneys (Oscar A. Brecke and Benedict Deinard) and for return to the bankrupt estate of all fees "heretofore allowed and paid them, or which might be paid them herein." Appeal No. 12,002 is by the same four creditors and Harry S. Goldie from an order (January 2, 1941) allowing attorney fees ($2,000.00) to the above counsel for the trustee for services from September 23, 1938 to March 21, 1939. Appeal No. 12,003 is by Harry S. Goldie from an order (January 2, 1941) denying an amended claim of Harry S. Goldie for services and disbursements ($5,618.55) as preferred administrative expenses. Appeal No. 12,004 is from an order denying two amended general claims (Nos. 184 and 185) of Harry S. Goldie ($26,406.26 and $26,761.59, respectively) except for an item of $8,000.00 on bonds (in claim No. 184) which is not involved in the appeal.

Historical Statement.

While each of these appeals must be determined separately upon the facts particularly applicable thereto, yet it is useful, to avoid some repetition, to make here a brief outline statement of certain matters of historical background. In 1926, the Calhoun Beach Holding Company (a Minnesota corporation and hereafter called "Holding Company") owned certain vacant lots advantageously located in the lake district of Minneapolis. Harry S. Goldie and two associates owned a majority of the capital stock and Mr. Goldie was the dominating influence. It was planned to develop this property by building thereon a combined club and apartment building. To carry out this plan, the bankrupt (Calhoun Beach Club Holding Company, a Delaware corporation) and the Calhoun Beach Club (a non-profit Minnesota corporation and hereafter called "Club") were incorporated in the autumn of that year. Mr. Goldie owned a majority of the capital stock of the bankrupt and was the dominating personality therein. The plan contemplated acquisition of the above land by the bankrupt which was to construct, equip and maintain the building for the exclusive use of the members of the Club.

The method for financing was through Club membership fees and later through money from a bond issue and from sale of stock in bankrupt. To procure membership in the Club and the resulting fees, the Club made a contract (December 11, 1926) appointing the Bankrupt to conduct a membership campaign, bankrupt to bear expenses thereof and to receive 15% of such membership fees as its pay. This contract provided for placing the 85% of such Club fees in trust and that, when such trust fund should equal $255,000.00 and the bankrupt should turn over to Club an acceptable agreement to furnish the necessary balance to construct and open the Club, the trust fund and later membership fees should be turned over to bankrupt and it would construct, maintain and operate the Club building. Provision was made, also, for earlier termination of the trust and handing over of the fund to bankrupt. About two months later, these contracts were altered to allow 20% instead of 15% of membership fees as compensation. In turn, bankrupt made contracts employing Mr. Goldie to carry out the above contract (and later the altered contract) on the same terms in so far as securing membership in the Club. The membership campaign proceeded producing cash and notes. In May, 1927, the trust was terminated and the trust fund directed turned over to bankrupt.

Construction by bankrupt began about August 1, 1927, with the Fleisher Engineering and Construction Company as general contractor. In the spring of 1928, negotiations began between bankrupt and H. O. Stone & Company to secure a bond mortgage loan to complete the construction. As a result thereof, the latter agreed to a loan issue of $1,075,000.00 (divided in two issues of bonds); the mortgage deed of trust was registered October 15, 1928. There seems to have been suspensions of work during the summer and autumn of 1928; and, after September 25, 1928, the work proceeded, under another general contractor (Joseph A. Holpuch Company), until the final suspension about December 1, 1929 — at which time the superstructure, walls and roof were in place. The Joseph A. Holpuch Company had given a contractor's bond to complete the work, with the Fidelity and Casualty Company of New York as surety. This suspension seems to have been caused by failure of H. O. Stone & Company to continue and complete payments for bonds purchased, or to be purchased, by it. The cause for such failure is disputed but not here material.

After this suspension of work, the history of this matter is one of various litigations. A number of mechanics' liens were filed and an action in the State district court to foreclose thereon was filed December 11, 1929. May 27, 1931, judgment went allowing liens to a large total and ordering foreclosure sale of the property in satisfaction. Except the relatively small amount of two claims, the liens were adjudged prior to the bond deed of trust. Sale was confirmed August 20, 1931, to the purchasers who were the prior lien judgment creditors.¹ On the date (August 20, 1932) of expiration of the statutory redemption period, the bankrupt and the Holding Company began an unsuccessful action in the State court to set aside the above lien judgment and sale.²

In September, 1932, an unsecured judgment creditor of bankrupt began an action in the State court for appointment of a receiver for bankrupt. While this case was pending on continuance, members of a Chicago law firm with an unsatisfied judgment for fees filed, on October 11, 1932, an action in the United States Court for the District of Minnesota for appointment of a receiver for bankrupt. The same day, consenting answer was filed by bankrupt and an order entered appointing Charles B. Cooper as receiver. He qualified the following day.

Four days later (October 15, 1932) an involuntary petition in bankruptcy was filed against bankrupt. Bankrupt filed an answer challenging the jurisdiction but this was later withdrawn and adjudication had on December 12, 1932, and the matter referred to the referee. February 20, 1933, Paul E. Von Kuster was appointed receiver in bankruptcy in order that an action might be filed that day against the Fidelity and Casualty Company of New York, as surety on the above contractor's bond of Joseph A. Holpuch Company — haste in this action was necessary to avoid the bar of limitations. At the first meeting of creditors (April 28, 1933), Harold W. Cox was, without objection, appointed trustee by the referee (there being no agreement on a trustee by the creditors) and later was substituted for Von Kuster as plaintiff in the suit on the bond. The bond suit resulted in the recovery of $31,001.89, which, with either $10.00 or $20.00 otherwhere collected by the trustee, constitutes the entire assets of the estate. Numerous claims, aggregating many thousands of dollars have been allowed with no dividend payment thereon and, so far as we are informed, with no prospect of further collection of assets. So much for the historical outline of the general situation. We pass to consideration of this appeal.

I. Removal Proceedings.

Prior to the filing of the present removal proceedings, there had been three earlier like proceedings. The first removal proceeding was begun (December 6, 1935) by a petition of six creditors (A. P. Kimm, Fred E. Andersen, Hennepin Transfer Co., B. G. Shapiro, N. W. Remole and J. H. Kammerdiener) praying removal of the trustee and his attorneys (Benedict Deinard and Oscar A. Brecke) and for disallowance of their fees. The matter was referred to the then referee (Alexander McCune) as special master. After full hearing the special master reported, with recommendations against removal and against forfeiture of fees. On review, the Court adopted the recommendations against removal and against forfeiture of fees of the trustee; but disapproved the recommendation against forfeiture of fees of the attorneys. The action of the Court as to attorney fees was based on failure to comply with General Orders 42 and 44 and local Rule 10. This order of the Court (July 22, 1937) required refund of $3,000.00 attorney fees theretofore paid. August 12, 1937, Brecke and Deinard filed a joint "petition and motion for rehearing" attacking that portion of the order denying their fees. Therein, among other things, they charged error in failing to hold that the order was without prejudice to an application for fees by them upon compliance with the General Orders and the Rules of Court and in failing to return the report to the referee for a corrected and supplemental report upon the filing by them of a proper petition and affidavit in accordance with the General Orders and the Rules if they could be properly made. January 24, 1938, an order was entered: "that the prayer of the respondents for rereference to the Referee be granted; that the case be referred to the Hon. Alexander McCune, Referee in Bankruptcy, for consideration of any presentation which respondents may make affecting their effort at compliance with the General Orders in Bankruptcy and local...