Rader v. Boyd, 6112.

• Decision Date: 25 June 1959
• Docket Number: No. 6112.,6112.
• Citation: 267 F.2d 911
• Parties: Earl RADER, Appellant, v. J. Marvin BOYD, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

267 F.2d 911 (1959)

Earl RADER, Appellant, v. J. Marvin BOYD, Appellee.

No. 6112.

United States Court of Appeals Tenth Circuit.

June 10, 1959.

Rehearing Denied June 25, 1959.

Charles D. Crandall and Herbert K. Hyde, Oklahoma City, Okl. (Roy St. Lewis, Washington, D.C., was with them on the brief), for appellant.

J. D. DeBois, Duncan, Okl. (James A. DeBois, Duncan, Okl., was with him on the brief), for appellee.

Before MURRAH, LEWIS and BREITENSTEIN, Circuit Judges.

BREITENSTEIN, Circuit Judge.

For the second time these parties present their bitter controversy arising out of appellant Rader's efforts to secure a real property arrangement under Chapter XII, Title 11 U.S.C.A., over the objection of his secured creditor, appellee Boyd. On the first appeal¹ this court rejected the claim of Rader that Boyd had no standing to object to the arrangement because of a fiduciary relationship and affirmed the rejection of the proposed arrangement by the trial court. Rehearing was denied "without prejudice to the submission of another plan under the provisions of Chapter 12 of the Bankruptcy Act." After remand, another arrangement was proposed, objections thereto sustained, and an adjudication of bankruptcy made.

The properties involved consist of oil and gas leases on which there are producing wells. The first proposed arrangement provided for the retention of the estate by the debtor, the deferment of payment to creditors, the accumulation of income from oil runs, the use of the accumulated income for the drilling of other wells, and the ultimate payment in full of all debts. This court held that such arrangement was a speculative venture with creditor's funds, did not adequately protect the secured creditor, and was not feasible within the contemplation of the Bankruptcy Act.

After the remand the debtor filed a "Proposed Plan for Arranging the Debts and Payment Therefor." This proposal contemplated the transfer of the properties to a corporation authorized to issue 1,000,000 shares of stock at a par value of $1. Evidence adduced in support of the plan shows that 600,000 shares of the stock were to be distributed to one Jouett Shouse in return for a loan to the corporation of $100,000 to be used in the rehabilitation and development of the properties. The remaining stock was to be issued 100,000 shares to debtor Rader, 167,000 shares to the attorneys for the debtor, and 133,000 shares to the creditors other than Boyd. The $100,000 advance by Shouse was to be secured by trustee's certificates which in the event of liquidation would have a prior position to the secured claim of Boyd.

The court conducted extensive hearings and refused confirmation holding that the proposed arrangement was not feasible, did not adequately protect secured creditor Boyd, and failed to meet the requirements of Chapter XII. Such determination is consistent with the opinion of this court in the first appeal wherein the first proposal was characterized as "a speculative venture with accrued funds belonging to the secured creditors." The second proposal is a speculative venture with funds obtained by the pledge of the property constituting the security of the creditor Boyd. There is no essential difference. In each instance the security of the creditor Boyd is to be used to finance a venture, the outcome of which is clouded with doubt.

The fact that the claim of Boyd had not been allowed and the amount thereof not fixed with certainty does not detract from the holding of the trial court because Rader conceded through his counsel that approximately $140,000 was due Boyd.² The evidence of the sponsors of the arrangement is that the property is worth far more than the debts due Boyd. In such circumstances Boyd is entitled to be paid and the proposed arrangement does not adequately protect him. The requirements of § 861(11) for "adequate protection" mean that when the value of the security is greater than the debt, the protection afforded by an arrangement must be completely compensatory.³

Counsel for Rader insist that Boyd is using his position as secured creditor to defeat the proposed arrangement with the intent of securing the property for himself, and they urge that the trial court should exercise its equitable powers and approve an arrangement which they say is fair to all. Compliance with § 861(11) is claimed on the basis that the arrangement adequately protects Boyd by enhancing the value of his security through rehabilitation and development work to be financed with the borrowed $100,000. The difficulty is that the results are speculative and the financing is to be obtained by the subordination of Boyd's security to a first lien in favor of the lender. The answer is clearly indicated. Shouse will not advance the money unless he has a first lien. His insistence on security justifies the position of Boyd that the arrangement will impair the security which he, Boyd, now has. The rejection of the second proposed arrangement...