National Refining Co. v. Pennsylvania Petroleum Co., 9691.

• Decision Date: 21 September 1933
• Docket Number: No. 9691.,9691.
• Citation: 66 F.2d 914
• Parties: NATIONAL REFINING CO. et al. v. PENNSYLVANIA PETROLEUM CO.
• Court: U.S. Court of Appeals — Eighth Circuit

66 F.2d 914 (1933)

NATIONAL REFINING CO. et al. v. PENNSYLVANIA PETROLEUM CO.

No. 9691.

Circuit Court of Appeals, Eighth Circuit.

August 12, 1933.

Rehearing Denied September 21, 1933.

Harry L. Jacobs, of Kansas City, Mo. (Fred Bellemere, I. J. Ringolsky, William G. Boatright, Daniel S. Millman, and Ringolsky, Boatright & Jacobs, all of Kansas City, Mo., on the brief), for appellants.

R. R. Brewster, of Kansas City, Mo., for appellee.

Before KENYON and GARDNER, Circuit Judges, and DEWEY, District Judge.

GARDNER, Circuit Judge.

This is an appeal from the decree dismissing an involuntary petition in bankruptcy filed by appellants against appellee, Pennsylvania Petroleum Company.

The acts of bankruptcy alleged in the petition are: (1) That while the appellee was insolvent, and within four months next preceding the filing of the petition, a receiver was appointed and put in charge of its property; and (2) that, while insolvent and within four months next preceding the filing of the petition, it made preferential payments to certain of its creditors with intent to prefer such creditors over others.

The appointment of a receiver was made by the District Court of the United States, for the Western District of Missouri, on the 21st of December, 1931, in a suit brought by Dean O. Howe against the Atlantic, Pacific & Gulf Oil Company, a corporation, and the Pennsylvania Petroleum Company, a corporation, and others, the plaintiff in that suit alleging that he was a creditor of the Atlantic, Pacific & Gulf Oil Company.

The Pennsylvania Petroleum Company is a Missouri corporation, organized in 1918 by J. E. Williams, who, until the receivership, was its president and managing officer. In 1929 the stockholders of the Pennsylvania Petroleum Company transferred their stock to the Atlantic, Pacific & Gulf Oil Company, receiving in lieu thereof stock in said last-named company. The Atlantic, Pacific & Gulf Oil Company, directly and through several other subsidiary corporations, operated various service stations, a refining and cracking plant, and sold, installed, and serviced oil burners. Appellee's business has been that of compounding, blending, and selling lubricating oils and greases.

J. P. Howe was the president, the largest stockholder, and a director of the Atlantic, Pacific & Gulf Oil Company. Two of his sons, one of whom was Dean O. Howe, were officers of the company. Nelson E. Johnson was vice president, director, stockholder, creditor, and general counsel of the parent company and all its subsidiaries.

On November 12 and 13, 1931, the directors of appellee, at a meeting at which the financial affairs of appellee and of the Atlantic, Pacific & Gulf Oil Company were discussed, adopted a resolution which, after reciting that Dean O. Howe, a creditor of the Atlantic, Pacific & Gulf Oil Company, was about to bring suit for the appointment of a receiver for it and all of its subsidiaries, and that the purpose of the receivership was to operate the companies as going concerns, and that while wholly solvent, suits were being threatened by various creditors of appellee, and that it was deemed to the best interest of appellee that it enter its appearance in the action and consent to the appointment of receiver, specifically authorized the president or vice president of appellee, if in his judgment it became necessary so to do, to file an answer in the receivership suit on behalf of appellee, admitting the allegations of the bill of complaint and consenting that plaintiff therein might have the relief prayed, including the appointment of a receiver. At the time at least one creditor was threatening suit against appellee.

The bill of complaint in the receivership suit alleged that the Atlantic, Pacific & Gulf Oil Company had assets far in excess of its liabilities; that its subsidiaries, including appellee, had been treated, handled, used, and operated as departments, agents, adjuncts, and parts of the parent corporation, and that all had been to a large degree handled, used, and carried on as one business under one management; that during the preceding eighteen months industrial conditions had been unfavorable to the operation of the business of defendants; that they could not procure loans with which to carry on business, and were practically without working capital; that each of the defendants was threatened with the institution of several independent suits or actions, and that they were without resources to prevent the entry of numerous judgments on such claims and the levying of executions upon their various assets; that the Atlantic, Pacific & Gulf Oil Company and its subsidiaries had established a valuable business; that their organizations and connections formed the basis for successful and profitable operation during normal times; that defendants had no ready cash to pay their current expenses or to meet their maturing obligations as they fell due; that too large a portion of their assets were invested in real estate and fixed assets not readily salable, though of sound value, and that, unless protected by the court, there would inevitably be further defaults in the performance of their obligations, and the value of their assets would be sacrificed by untimely sales and foreclosures of mortgages, although by proper care such value ought to be preserved; that, if the assets were marshaled and conserved, and the business operated for the benefit of all creditors, the assets would produce much more than as a result of the independent enforcement of claims of creditors. The value of the assets of the Atlantic, Pacific & Gulf Oil Company was alleged to be $2,066,808, and its liabilities approximately $449,317.34. The appointment of a receiver to conserve assets, carry on business, and sell the property for the benefit of creditors was sought, together with an injunction to restrain the creditors from interfering with the possession of the receiver or attempting to enforce their claims.

On December 21, 1931, on consent of all the defendants in that suit a receiver was appointed. The order of appointment was responsive to the prayer of the bill of complaint. Nelson E. Johnson was appointed receiver. He had prepared the answer for the defendants, admitting the allegations of the complaint, and consenting to the appointment of a receiver, and he likewise prepared the order appointing himself receiver.

The note upon which suit was brought was a demand note, dated October 31, 1931, for $5,000, executed by the Atlantic, Pacific & Gulf Oil Company.

On December 23, 1931, two days following the appointment of the receiver, the petitioning creditors filed their involuntary petition in bankruptcy against appellee. The receiver, on leave of court, filed a verified answer, as did also the appellee, denying the allegations of insolvency, and the commission of the alleged acts of bankruptcy.

On the 24th or 25th of December, 1931, Nelson E. Johnson, who had already been named as receiver, prepared an involuntary petition against the Atlantic, Pacific & Gulf Oil Company, in which the act of bankruptcy alleged was the appointment of the receiver while the corporation was insolvent, also preferences to certain creditors while insolvent. These papers were filed December 30, 1931, but no action was ever taken upon them.

On the issue joined by the answer of the defendant to the involuntary petition in bankruptcy, trial was begun by a jury, but the jury disagreed, and the parties then stipulated in writing for a trial to the court without a jury. The court found that neither at the time of the commission of the alleged acts of bankruptcy nor at the time of the filing of the petition was the appellee insolvent, and dismissed the petition.

While, as has been observed, the allegations of the petition charge as acts of bankruptcy the appointment of the receiver, and the preferential payments to certain creditors with intent to prefer such creditors over others, appellants abandoned this latter alleged act of bankruptcy and offered no evidence to support it, leaving only the one alleged act of bankruptcy, to wit, that, while appellee was insolvent, a receiver was appointed. It is urged by appellants, however, that the facts show a transfer of appellee's assets with intent to hinder, delay, or defraud its creditors, and it is contended on this appeal that (1) the alleged bankrupt conveyed or transferred all of its assets with intent to hinder, delay, or defraud its creditors, and therefore such assets could not be counted in determining insolvency under the Bankruptcy Act; and (2) that even though the assets in the hands of the receiver could be counted in determining insolvency, nevertheless, under the entire record, the alleged bankrupt was conclusively shown to be insolvent.

Bankruptcy Act, § 3, as amended by Act of May 27, 1926 (11 USCA § 21), provides that acts of bankruptcy by a person shall consist of his having "(1) conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, any part of his property with intent to hinder, delay, or defraud his creditors, or any of them; or (2) transferred, while insolvent, any portion of his property to one or more of his creditors with intent to prefer such creditors over his other creditors; or (3) suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings, and not having at least five days before a sale or other disposition of any property affected by such preference vacated or discharged such preference; or (4) suffered, or permitted, while insolvent, any creditor to obtain through legal proceedings any levy, attachment, judgment, or other lien, and not having vacated or discharged the same within thirty days from the date such levy, attachment, judgment, or other lien was obtained; or (5) made a general assignment for the benefit of his creditors; or, while insolvent, a receiver or a trustee has been appointed, or...