State of Ohio v. Four Seasons Nursing Centers of Am., Inc., 71-1559.

Decision Date03 August 1972
Docket NumberNo. 71-1559.,71-1559.
Citation465 F.2d 25
PartiesSTATE OF OHIO, Petitioner for Reclamation-Appellant, v. FOUR SEASONS NURSING CENTERS OF AMERICA, INC., Debtor-Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

Richard North Patterson, Asst. Atty. Gen. (William J. Brown, Atty. Gen., A. L. Gretick, Executive Asst. to the Atty. Gen., Columbus, Ohio, on the brief), for petitioner-appellant.

Arthur F. Mathews, Washington, D. C. (Michael R. Klein and Robert B. McCaw, Washington, D. C., on the brief), for appellee, Jack L. Clark.

John A. Johnson, Oklahoma City, Okl., for debtor-appellee.

Before JONES,* HILL and BARRETT, Circuit Judges.

HILL, Circuit Judge.

This is an appeal by the State of Ohio from the denial of its reclamation petition filed against the debtor corporation, Four Seasons Nursing Centers of America, Inc. Four Seasons is currently involved in Chapter X Corporate Reorganization Proceedings before the United States District Court for the Western District of Oklahoma. The reclamation petition was denied on July 14, 1971, 329 F.Supp. 647, after a full hearing in that court.

In early 1970, Mr. Jack L. Clark, the president of Four Seasons, received information that a Mr. Ronald R. Howard of Los Angeles, California, was in a position to assist Four Seasons in borrowing needed funds for continued operation and expansion. Howard and Clark conferred in Oklahoma City for the purpose of consummating an agreement for the procurement of funds. It was anticipated that Four Seasons would borrow between $20,000,000 and $24,000,000 from the State of Ohio. Howard contacted Crofters, Inc., a Columbus, Ohio, investment firm. Mr. Harry A. Groban, the executive vice president of Crofters, requested a credit rating on Four Seasons from the National Credit Office, a division of Dun and Bradstreet. An employee of the National Credit Office procured the latest annual report of Four Seasons, as well as other statements and bank information concerning that corporation from Mr. John Mee, a vice president of and attorney for Four Seasons. Based on this material, the national Credit Office gave Four Seasons a rating of "prime" for commercial paper. This information was communicated by letter to Groban; Groban in turn furnished the information to Mr. Robert F. Gardner, Deputy Treasurer of the State of Ohio.

Groban advised Mee that funds would be available to Four Seasons from the State of Ohio. Thereafter, Mr. Alex Russell, an officer of Four Seasons, went to Columbus, Ohio, to secure the funds. On March 9, 1970, Russell consummated a loan of $3,000,000 for Four Seasons with the State of Ohio through Gardner and in the presence of Groban. The loan was evidenced by two promissory notes of Four Seasons, one for $2,000,000 payable in 120 days and another for $1,000,000 due in two years. The $2,000,000 note was made on the basis of 120 days with the understanding that when due the note would be renewed for a period of two years. A second loan for $1,000,000 was advanced on March 23, 1970; a note for $1,000,000 payable in two years to the State of Ohio was executed on that date.

The State of Ohio sought reclamation of these funds as against the trustee in the reorganization proceedings in the court below. Ohio argued that Four Seasons had intentionally made material and fraudulent misrepresentations concerning its financial condition to the National Credit Office to obtain a rating of prime. In reliance on this rating, the loans of $4,000,000 had been made to Four Seasons by the State of Ohio. Ohio additionally contended that the $4,000,000 loans were in violation of an Ohio statute and therefore void; consequently, the funds should have been returned to the Ohio State Treasurer. The reclamation petition of the State of Ohio was denied. The trial court found no fraudulent representations in the material furnished the National Credit Office or in procurement of the loans. The Ohio statute in question was adjudged inapplicable. The State of Ohio now appeals.

Appellant advances five arguments in support of this appeal: first, that the claim of appellant against the property held by the trustee must be assessed by reference to the law of Ohio; second, that the loans were made in violation of Ohio law; third, that the prime rating relied upon by the Ohio State Treasurer was obtained through Four Seasons' materially false statements; fourth, that the appellant is entitled to recover the funds under the applicable Ohio standards for recovery of trust property; and fifth, the appellant is alternatively entitled to the return of all funds traceable under traditional tracing rules. We view the narrow issue presented in this appeal to be whether the State of Ohio may properly argue the application of a constructive trust to the funds in question.

We reject appellant's arguments that the State of Ohio's claim against the property held by the reorganization trustee must be assessed by reference to the law of Ohio and that Ohio standards for recovery of trust property govern here. Section 70(c) of the Bankruptcy Act, 11 U.S.C. § 110(c), confers the status of an ideal lien creditor on a reorganization trustee.1 His priority as against a creditor-claimant is determined by the substantive law of the state where the property is located.2 Thus appellant's right to the property in question will be decided by Oklahoma, not Ohio, law.

We likewise reject appellant's argument that the prime rating relied upon by the Ohio State Treasurer in making these loans was obtained...

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8 cases
  • In re Four Seasons Securities Laws Litigation
    • United States
    • U.S. District Court — Western District of Oklahoma
    • 18 January 1974
    ...on Ohio's appeal from the denial of its reclamation petition filed in the Chapter X proceedings. State of Ohio v. Four Seasons Nursing Centers of America, Inc., 465 F.2d 25 (Aug. 3, 1972). The Tenth Circuit stated those facts as "In early 1970, Mr. Jack L. Clark, the president of Four Seaso......
  • Davis v. Combes
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • 28 June 2002
    ...166 F.2d 659, 666 (7th Cir.1948) (applying Indiana's "clear and convincing evidence" burden of proof); Ohio v. Four Seasons Nursing Centers of America, Inc., 465 F.2d 25 (10th Cir.1972) (applying Oklahoma's "clear and convincing evidence" burden of proof). Illinois courts have stressed that......
  • Four Seasons Securities Laws Litigation, In re
    • United States
    • U.S. Court of Appeals — Tenth Circuit
    • 25 November 1974
    ...Seasons Nursing Centers of America. The facts surrounding the execution of these loans are set out in Ohio v. Four Seasons Nursing Centers of America, 10 Cir., 465 F.2d 25, at 26, 27 as In early 1970, Mr. Jack L. Clark, the president of Four Seasons, received information that a Mr. Ronald R......
  • Seneca Oil Co., In re
    • United States
    • U.S. Court of Appeals — Tenth Circuit
    • 28 June 1990
    ...or as to leave no reasonable doubt as to the existence of the trust." Id. at 681; see also Ohio v. Four Seasons Nursing Centers of America, Inc., 465 F.2d 25, 28 (10th Cir.1972) (observing that the standard for imposing a constructive trust in Oklahoma is Although it is a close issue, we be......
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