Park Lane Dresses v. Houghton & Dutton Co.

• Court: U.S. Court of Appeals — First Circuit
• Writing for the Court: BINGHAM and WILSON, Circuit , and MORRIS
• Citation: Park Lane Dresses v. Houghton & Dutton Co., 54 F.2d 33 (1st Cir. 1931)
• Decision Date: 28 November 1931
• Docket Number: No. 2636.,2636.
• Parties: PARK LANE DRESSES, Inc., et al. v. HOUGHTON & DUTTON CO. et al.

54 F.2d 33 (1931)

PARK LANE DRESSES, Inc., et al. v. HOUGHTON & DUTTON CO. et al.

No. 2636.

Circuit Court of Appeals, First Circuit.

November 28, 1931.

William M. Silverman, of Boston, Mass. (Hermanson & Silverman, of Boston, Mass., on the brief), for appellants.

Richard C. Evarts, of Boston, Mass. (Lyne, Woodworth & Evarts, of Boston, Mass., on the brief), for receivers of Houghton & Dutton Co.

Robert Homans, of Boston, Mass., for trustees.

Frank W. Knowlton, of Boston, Mass., for Boston Pub. Co.

Before BINGHAM and WILSON, Circuit Judges, and MORRIS, District Judge.

WILSON, Circuit Judge.

This is an appeal from the order of the District Court dismissing an involuntary petition in bankruptcy. The proceedings below appear to have been somewhat summary, and, as a result, the record is unsatisfactory.

The petition was filed by three creditors of Houghton & Dutton Company, with claims totalling less than $2,000 on August 29, 1931, and alleged as acts of bankruptcy: (1) That the Houghton & Dutton Company, within four months of the filing of the petition in bankruptcy, to wit, in June, 1931, and while insolvent, transferred a portion of its assets to one of its creditors, Sperry & Hutchinson Company, with intent to prefer that creditor over its other creditors of the same class, the result of which transfer was to enable said creditor to obtain a greater percentage of its claim than other creditors of the same class; (2) that on the 15th day of June it permitted the above-named creditor to obtain a decree in the superior court of Suffolk county in the commonwealth of Massachusetts for the payment to said creditor of a substantial sum of money, whereby said creditor was enabled to obtain a greater percentage of its claim than other creditors of the same class; (3) that on the 21st day of August, 1931, while insolvent, the alleged bankrupt transferred a portion of its assets to said Sperry & Hutchinson Company, with intent to prefer said creditor over other creditors of the same class; (4) that on the 28th day of August, while insolvent, it permitted a decree to be entered in the equity court, the result of which will enable said Sperry & Hutchinson Company to obtain a preference over other creditors of the same class; (5) that on December 2, 1930, and continuously by one continuous act for four months next preceding the filing of the petition in bankruptcy, caused a large amount of assets to be removed, with intent to hinder and delay its creditors, in that it did on December 2, 1930, cause receivers to be appointed to take possession of all its assets in a proceeding instituted by one Plummer et al., creditors of the alleged bankrupt, in the superior court for the county of Suffolk in the commonwealth of Massachusetts, sitting as a court of equity, in which it was represented that the company was solvent; that said proceedings in equity purported to have been instituted adversely to said company and in the interest of creditors; that the company assented to these proceedings and to the appointment of said receivers; that the petitioners in bankruptcy, relying on the sworn allegations of the complainants and of the answer of the company, refrained from asking for the adjudication of the company in bankruptcy, until August, 1931, when the petitioners for the first time learned of the insolvent condition of the Houghton & Dutton Company; and that the proceeding for the appointment of receivers was not adverse, but had the active co-operation of the Houghton & Dutton Company from its inception.

To this petition the receivers in the equity proceedings, pursuant to an order of the state court, and a large number of creditors filed separate answers, each answer formally denying the insolvency of the Houghton & Dutton Company; the receivers and several of the creditors setting up affirmative matter in defense.

The answer of the Boston Publishing Company, a creditor to the extent of $35,000, and its answer being the fullest and containing all affirmative matter of defense set up in any of the other answers, may be thus briefly summarized: It formally denies the insolvency of the company, or that within four months of the filing of the petition in bankruptcy the Houghton & Dutton Company had committed any act of bankruptcy, and also specifically denies each alleged act of bankruptcy set up in the petition; it admits that in December, 1930, proceedings in equity were instituted in the superior court of Suffolk county by creditors, and that the officers of the company, duly authorized, assented to the receivership proceedings; that, after notice to all its creditors, and none opposing, permanent receivers were appointed and took possession of the assets of the company, and under the decree of the court have continued to conduct the business of the company as a department store; that the payment to said Sperry & Hutchinson Company in June, 1931, was for overdue interest on a collateral note in order to preserve the collateral for the benefit of creditors, and was done with the approval of the equity court; that in August, 1931, by decree of the equity court, after due notice to all creditors that bids would be received for the assets of the company, an offer was accepted for all the assets of the company; that the bid, approved by the court, provided for the redemption of the collateral pledged to Sperry & Hutchinson Company as security for the loan, to whom it is alleged in the petition preferences were thus given, said collateral consisting of shares in a real estate trust, owning or controlling the main part of the building in which the business of the company is conducted, and in which the successful bidders propose to continue the business, said shares representing the equity in said real estate and controlling a lease of the premises to the company on favorable terms; that two of the petitioners filed their claims with a creditors' committee, with authority to represent them in the receivership proceedings; that counsel for said creditors' committee, who is also counsel for the petitioners in these proceedings, filed the claims of at least two of the petitioners with the receivers in the equity proceedings, and actively participated in the receivership proceedings from the beginning up to the time of the acceptance of the successful bidder for the assets in August, 1931, and at that time urged upon the court the acceptance of a competitive bid.

To these answers were attached certain decrees of the superior court confirming the several acts of receivers set forth in the petition in bankruptcy as acts of bankruptcy by the alleged bankrupt within four months of the filing of the petition, and also a duly authenticated decree authorizing their appointment and defining their powers and restraining the Houghton & Dutton Company from in any way disposing of its assets or interfering with the receivers. A copy of the bill of complaint in the equity court is not made a part of the petition or of the answer.

On September 10, 1931, the receivers filed a motion in the bankruptcy court that the court hear forthwith the issues raised by the petition and answers, and make such orders as the court sees fit for the disposition of the case.

What was intended by the motion is, perhaps, made clear by the colloquy between court and counsel that took place on the date assigned for the hearing:

Mr. Silverman (counsel for petitioning creditors): "I should first like to know whether or not we are appearing here on a motion to dismiss, which is purely a matter of law, or whether on the facts alleged by the bankruptcy petition and the answers thereto."

Mr. Evarts (counsel for the receivers): "As far as the receivers are concerned, there is no motion to dismiss, Your Honor; it is simply a motion that the court hear forthwith the issues raised by the petition and the answers filed thereto, or make such other order for the prompt disposition of the bankruptcy proceedings as the court may see fit."

No evidence was offered by either party; and, although all the allegations of the petition were denied by the answers and under rule 31 of Equity Rules (28 USCA § 723), applicable to pleadings in the bankruptcy courts, all the allegations of the answers are assumed to be denied without the filing of a replication, certain facts, sufficient, we think, to dispose of the case, were admitted by counsel in open court in a colloquy between court and counsel for the petitioners.

It is conceded that a bill in equity was filed in the superior court for Suffolk county on December 2, 1930, by several creditors of the Houghton & Dutton Company, and that in form at least the proceedings were adverse to the Houghton & Dutton Company. It is also conceded that Houghton & Dutton Company through its officers duly authorized the filing of an answer admitting the allegations in the bill of complaint and joining in the prayer for the appointment of a receiver. It also appears from statements of counsel that the preferences alleged in the bankruptcy petition were payments of interest to a creditor holding a collateral note, and were paid by the direction or with the approval of the equity court. It also is conceded that the decree authorizing the sale of the assets in August involving payments to said creditor of its loan was done by order of the equity court after hearing and the acceptance of a competitive bid for all the assets of the company, which bid required the release of the collateral.

It is also conceded that there was a large amount of indebtedness; that the receivers have...