Olle v. Henry & Wright Corp.

• Decision Date: 10 September 1990
• Docket Number: Nos. 89-3532,89-3615,s. 89-3532
• Parties: 23 Collier Bankr.Cas.2d 683, 17 Fed.R.Serv.3d 355 Frank OLLE, Jr.; Automatic Press Corporation; and James W. Cato, Plaintiffs-Appellees, v. The HENRY & WRIGHT CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 357

910 F.2d 357

23 Collier Bankr.Cas.2d 683, 17 Fed.R.Serv.3d 355

Frank OLLE, Jr.; Automatic Press Corporation; and James W Cato, Plaintiffs-Appellees, v. The HENRY & WRIGHT CORPORATION, Defendant-Appellant.

Nos. 89-3532, 89-3615.

United States Court of Appeals Sixth Circuit.

Argued March 15, 1990.

Decided Aug. 9, 1990.

Rehearing Denied Sept. 10, 1990.

John J. Sheehan, Sheehan & Sheehan, Cleveland, Ohio, for plaintiff-appellee Frank Olle, Jr.

Nicholas Phillips (argued), Stewart S. Wilson, North Royalton, Ohio, for plaintiffs-appellees Automatic Press Corp. and James W. Cato.

William D. Beyer, Kathleen M. Dugan, Wuliger, Fadel & Beyer, Roger L. Kleinman (argued), Burke, Haber & Berick, Cleveland, Ohio, for defendant-appellant Henry & Wright Corp.

Saul Eisen, Cleveland, Ohio, pro se.

Before WELLFORD and NELSON, Circuit Judges, and LIVELY, Senior Circuit Judge.

WELLFORD, Circuit Judge.

In an unpublished opinion, dated December 10, 1987, in this same controversy, we held that "the District Court should have remanded the case to the Bankruptcy Court for detailed findings of fact and conclusions of law under Rule 52, F.R.Civ.P." See In re The Henry & Wright Corp., 835 F.2d 879 (6th Cir.1987). We refer to this opinion and reiterate a portion to set out the essential background of this case:

On November 8, 1982, the Trustee in bankruptcy [of Henry & Wright Corporation (H & W1) ] filed with the Bankruptcy Court a Complaint to Sell Personal Property. The property which was to be sold included "inventory, supplies, equipment, engineering plans and documents, and good will and trade name" of H & W1. A liquidation sale was held on December 14, 1982. Press Services, Inc., [PSI] made a bulk bid of $25,000, which was accepted. The Trustee reported to the Bankruptcy Court that no bids were made for H & W1's good will and trade name. The Trustee requested that the Bankruptcy Court issue an order confirming the sale and abandoning the good will and trade name. On December 16, 1982, the Bankruptcy Court entered the requested order.

[PSI] used the assets it had purchased at the liquidation sale to form a new Henry & Wright Corporation (H & W2). A group of former officers and employees of H & W1 formed Automative [sic] Press Corporation (APC), which engages in work similar to that formerly engaged in by H & W1 and currently engaged in by H & W2.

In November 1984, H & W2 filed suit in District Court against APC and its officers. H & W2 stated in its complaint that it had purchased all of the assets, including the good will and trade name, of H & W1. The complaint charged APC with, among other things, tortious interference with good will and infringement of trade name. APC's defense is substantially based on the Bankruptcy Court's Order Confirming Sale, which ordered that the good will and trade name be abandoned.

In July 1985, [PSI] filed with the Bankruptcy Court a motion to correct the Order Confirming Sale. The motion contained the affidavit of the auctioneer who conducted the liquidation sale. The auctioneer stated that the good will and trade name had been sold to [PSI] along with the other assets.

Frank Olle, who is an officer of APC, moved for leave to intervene, arguing that the Order Confirming Sale affected his rights in the good will and trade name. Olle's motion to intervene was granted. The Bankruptcy Court denied [PSI]'s motion, the Bankruptcy Court holding that [PSI] had no standing because it was not a party to the original bankruptcy case.

In September 1985, the Trustee filed an Application for Instructions with the Bankruptcy Court. Relying on the affidavit of the auctioneer, the Trustee requested instructions as to the appropriateness of filing an Amended Report of Sale....

After a hearing, the Bankruptcy Court instructed the Trustee to file an Amended Report of Sale. The Trustee filed an Amended Report of Sale which indicated that [PSI] bought all of H & W1's assets, including the good will and trade name. The Bankruptcy Court then entered an Amended Order Confirming Sale Nunc Pro Tunc to that effect....

....

The District Court held that the Bankruptcy Court was without jurisdiction to enter the Amended Order. According to the District Court, the original Order Confirming Sale could only be corrected under Fed.R.Civ.P. 60. The District Court held that the mistake necessitating amendment was a substantive mistake, which Rule 60(b)(1) provides can only be corrected within one year of the mistake. Because the Amended Order was entered well over one year after the original Order, the District Court found that the Bankruptcy Court was without jurisdiction.

This present appeal involves proceedings under Chapter 7 of the Bankruptcy Code for liquidation of The Henry & Wright Corporation (H & W1), an Ohio corporation which had previously filed a Chapter 11 bankruptcy petition. As a part of the liquidation process, the trustee filed a complaint on November 8, 1982, to sell the assets of H & W1. The trustee retained the services of an appraiser and appointed Rosen & Company as auctioneer for the sale of the personal property of H & W1. At an auction held on December 14, 1982, PSI of South Carolina made a bid of $25,000. The auctioneer reported this to the trustee who, in turn, reported to the court that the tangible assets of H & W1 were sold for $25,000, but that no bids were made for the good will and trade name. The trustee requested an order confirming the sale and abandoning the good will and trade name of H & W1. PSI transferred the assets of H & W1 to a related South Carolina corporation, H & W2. ¹ Frank Olle, Jr. and James Cato, former employees of H & W1, subsequently formed a new corporation, APC, to engage in similar work.

H & W2 stated in its 1984 complaint that it had purchased all of the assets, including the good will and trade name, of H & W1. Olle, Cato, and APC based a substantial part of their defense on the bankruptcy court's order in which the trade name and good will of H & W1 were declared abandoned.

In the 1985 application for instructions, the trustee reported that: (1) his prior report of sale was incorrect when it reported that no bids were received on the good will and trade name of H & W1; (2) the good will and trade name had in fact been sold at the auction as part of the package of all assets; and (3) the bankruptcy court's order of December 1982 confirming the sale was incorrect when it ordered the trade name and good will of H & W1 abandoned.

In 1985, the bankruptcy court held a hearing regarding the trustee's application for instructions. The auctioneer, Stanley Rosen, was the only witness to appear at the hearing. ² H & W1, Olle, APC, and Cato were all represented by counsel at the hearing. The district court concluded:

Fed.R.Civ.P. 60(b) provides a reasonable and adequate procedure for parties to correct substantive errors in court judgments. If there was an error in the Bankruptcy Court's original order, all those with an interest in the matter had a year in which to have it corrected. Their failure to seek a correction until several years later does not permit them to recast their claim as one for the correction of a clerical rather than a substantive error. The time to correct a substantive error in the Bankruptcy Court's original order passed long ago.

On our subsequent remand to the bankruptcy court, the case was reassigned to Judge Baxter because the original bankruptcy judge, John Ray, had died during the pendency of the appeal. H & W2 filed a motion to intervene in the bankruptcy court proceeding and to be permitted to participate in a scheduled hearing. Judge Baxter denied this motion and thereafter H & W2 filed a motion to reconsider. The bankruptcy court eventually granted H & W2's motion to reconsider and H & W2's motion to intervene. At the hearing, Judge Baxter permitted only the auctioneer to testify and only the trustee to question the witness. Thereafter, Judge Baxter issued findings of fact and conclusions of law.

After an appeal by H & W2, District Court Judge Krenzler issued a memorandum opinion vacating the bankruptcy court's order, reinstating the original order, and reaffirming his earlier decision that the bankruptcy court was without jurisdiction to amend an alleged "substantive" error in the 1982 order of sale.

H & W2 appeals for a second time.

STANDING TO APPEAL

Plaintiffs, Olle, APC, and Cato, contend that H & W2 has no standing because the bankruptcy court in August 1985 ruled that PSI and H & W2 had no standing to file a motion to correct the alleged error in the order confirming sale. Plaintiffs assert that because neither PSI nor H & W2 appealed this order denying their motion and did not seek leave to intervene in the 1985 proceedings, H & W2 has no standing to maintain this appeal. H & W2 argues that since the trustee filed an application for instructions in 1985, several days before H & W2's time to appeal had lapsed, there was no need to pursue an independent appeal. ³

When the plaintiffs appealed the bankruptcy court's amended order, the district court consolidated this appeal with District Court Case No. C84-3717, in which H & W2 was the plaintiff. This consolidation, entered on January 24, 1986, appears to give H & W2 standing to brief and argue the issues in this case.

On February 16, 1989, H & W2 officially sought leave to intervene in the proceedings before the bankruptcy court. On March 8, 1989, the bankruptcy court granted H & W2's motion to intervene. H & W2, as an intervenor, became a party for all purposes. See District of Columbia v. Merit Sys. Protection Bd., 762 F.2d 129, 132 (D.C.Cir.1985). Our 1987 remand order anticipated that the bankruptcy court had discretion to take any action necessary to develop its findings of fact and conclusions of law. See In re Vekco, Inc., 792 F.2d 744, 745 (8th Cir.1986). We, therefore, hold that H & W2 has standing to maintain the present appeal.

WAS THERE AN...