Matter of Portsmouth Newspapers, Inc.

• Court: U.S. District Court — Eastern District of Virginia
• Writing for the Court: Cantor, McMullan & Cantor, Robert Cantor, Richmond, Va., for petitioner
• Citation: Matter of Portsmouth Newspapers, Inc., 157 F.Supp. 640 (E.D. Va. 1958)
• Decision Date: 08 January 1958
• Docket Number: No. 17626.,17626.
• Parties: Matter of PORTSMOUTH NEWSPAPERS, Inc., Bankrupt.

157 F. Supp. 640

Matter of PORTSMOUTH NEWSPAPERS, Inc., Bankrupt.

No. 17626.

United States District Court E. D. Virginia, Norfolk Division.

January 8, 1958.

Cantor, McMullan & Cantor, Robert Cantor, Richmond, Va., for petitioner.

Leonard G. Karp, Portsmouth, Va., for intervening petitioner.

Worthington, White & Harper, William C. Worthington, Norfolk, Va., for trustee in bankruptcy.

WALTER E. HOFFMAN, District Judge.

The question presented by the petition for review filed herein by Sheldon F. Sackett is essentially confined to a determination of what assets Sackett acquired in the purchase of the assets of the bankrupt estate pursuant to a sealed upset bid submitted to the Referee in Bankruptcy on May 22, 1957, or, stated otherwise, is Sackett entitled to a credit of $19,038.34 on account of the total purchase price of $125,100?

The sequence of events leading up to the filing of the petition for review is important to note because of the language adopted by the Referee in an order entered on May 23, 1957, prepared by the trustee in bankruptcy.

Following the acquisition of the newspaper known as the "Portsmouth Star" by Norfolk Newspapers, Inc., the City of Portsmouth was without a locally owned and operated newspaper, although Norfolk Newspapers, Inc., continued the publication of Portsmouth editions for the benefit of Portsmouth residents. Certain Portsmouth citizens, believing it to be of benefit to the community and for reasons of their own, organized the now bankrupt corporation and published a newspaper called the "Portsmouth Times". After a period of slightly less than one year the operation was deemed financially unsuccessful and, during the latter part of March, 1957, the newspaper ceased publication and the corporation caused to be executed and recorded a deed of assignment for the benefit of its creditors. The corporate assets were then in process of liquidation by the trustees under the deed of assignment. Arrangements were made for the sale of the physical assets on May 11, 1957, and the trustees under the deed of assignment had obviously expended large sums of money in advertising this sale, thereby stimulating an unusual amount of interest therein.

On May 9, 1957, only two days prior to the scheduled sale, certain creditors filed a petition in involuntary bankruptcy, and an order of general reference was entered referring the matter to the Referee. The following day, May 10, 1957, a creditor filed an application for the appointment of a receiver. In the absence of the Referee the Court entered an order on that date designating P. B. White as receiver but, because of the advantages to be derived from a sale of the assets at public auction on May 11, 1957, the following provision was inserted in said order:

"It further appearing to the Court that considerable sums of money have been expended in advertising, cataloging, tagging and displaying the assets of the debtor preparatory to a sale presently scheduled for May 11, 1957, and for other cogent reasons shown, the Receiver is hereby ordered to proceed to offer for sale to the highest bidder, either by parcel or by lot, at public auction on May 11, 1957, all the physical assets and personal property; such sale to be subject to the final approval of the Bankruptcy Court and also subject to such upset bid as may be made in conformity with such terms and conditions as the Bankruptcy Court shall hereafter determine. A cash deposit of twenty-five per cent (25%) shall be required of the successful bidder, which deposit, along with the assets, shall be held by the Receiver until the further order of the Court."

It should be noted that the Court, in the foregoing order, authorized the receiver to sell "all the physical assets and personal property".

The sale of May 11 was well attended and the bidding was spirited. The accounts receivable were admittedly excluded from the sale and an item of bulk lead brought no bidder. Other items were sold by lot to numerous bidders, the aggregate purchase price of $83,750.95 being in excess of the appraised value. These bids were, of course, subject to upset bids as provided by the order of May 10, 1957.

On May 22, 1957, the corporation was duly adjudicated a bankrupt. On the following day the Referee entered an order reading in part as follows:

"This cause was set down for hearing, on the report of the Receiver asking for confirmation of the sale on May 22, 1957, at 9:30 A.M., at which time, in conformity with the terms and conditions of the Bankruptcy Court, up-set bids had to be filed with a cash deposit of at least 25%, two up-set bids were received, and opened by the Referee.

"It appearing to the Court that the highest bid received was that of Shelton F. Sackett, in the sum of $125,100.00, for all of the assets of the bankrupt except the accounts receivable, accompanied by money orders and cashier's check in the sum of $33,000.00, as a cash deposit, it is hereby

"Ordered that the sale at public auction be not confirmed, and the upset bid of Shelton F. Sackett, in the sum of $125,100.00, for all of the assets except the accounts receivable, be accepted and confirmed.

"It is further ordered that the Receiver, P. B. White, will not deliver any of the equipment or assets sold until the full amount of $125,100.00 is paid to the Receiver, and this sum shall be paid to the Receiver on or before July 1, 1957, and upon the payment of the full amount of $125,100.00, to the Receiver, he is to deliver all of the assets, except the accounts receivable, to Shelton F. Sackett, the purchaser."

While the foregoing order was entered by the Referee on May 23, 1957, the evidence conclusively shows that the upset bids were considered at a hearing held on May 22, 1957, at which time Sackett was present with his attorney, Leonard G. Karp, who had also served as counsel for the trustees under the deed of assignment. Also present at the hearing, in addition to the Referee and receiver, were Ben Shulman and his attorney, M. B. Wagenheim; Shulman having submitted a sealed bid in the sum of $104,000, a figure $21,100 less than that as offered by Sackett, and having predicated his bid on the assumption that it was only for the physical assets of the bankrupt corporation.

The sealed bid filed by Sackett states:

"May 21, 1957. "Refree in Bankruptcy Post Office Building Norfolk, Virginia

"Dear Mr. Kyle:

"I am herewith offering as an upset bid the sum of $125,100.00 for all of the assets of the Portsmouth Times, located at 1525 High Street, Portsmouth, Virginia, with the exception of its accounts receivable.

"I am herewith attaching my check in the sum of $33,000.00 as a deposit and the balance is to be paid July 1, 1957.

"Yours very truly Sheldon F. Sackett

"LGK:dps"

In the handwriting of the Referee at the bottom of the foregoing letter appears the following:

"Upset: This offer accepted as an upset bid W. E. Kyle Referee The offer here for the assets of Portsmouth Newspapers, Inc. T/A Portsmouth Times W. E. Kyle May 22, 1957. "$33,000.00 certified checks and Western Union M. O turned over to Receiver."

It is conceded by all parties that, at the time of the receipt of the sealed upset bids on May 22, no mention was made with respect to the purchase or acquisition of cash deposits in bank, escrow accounts, or funds collected by the trustees under the deed of assignment since the date of the recordation of the deed. The trustees actually collected $40,156.91 during this period, of which amount $11,562.81 was collected by attorney Karp, as counsel for the trustees, on May 13, 1957; same representing a deposit in the sum of $11,350, plus interest accrued in the sum of $212.81, made by the corporation in the Merchants & Farmers Bank as security for any indebtedness due the Associated Press for its services to the operating newspaper. On May 7, 1957, prior to bankruptcy, the trustees had forwarded to the Associated Press the sum of $910.79 in full payment of the corporate account to the end that the escrow account could be released. After paying the expenses of the trustees, as well as $18,294.61 to the Director of Internal Revenue for taxes, the remaining balance of $18,447.40 was paid to P. B. White, Receiver in Bankruptcy, by check dated May 17, 1957, but delivered to White on May 22...