Stratford of Texas, Inc., In re, No. 79-2129

• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)
• Writing for the Court: Before HILL, RUBIN and ANDERSON; R. LANIER ANDERSON, III
• Citation: 635 F.2d 365
• Parties: In re STRATFORD OF TEXAS, INC., et al., Debtors. The OFFICIAL CREDITORS COMMITTEE OF STRATFORD OF TEXAS, INC., Etc., Appellants, v. STRATFORD OF TEXAS, INC., Class III Creditors Subcommittee of the Official Creditors Committee, Collins Electric Co., Inc., Appellees.
• Decision Date: 26 January 1981
• Docket Number: No. 79-2129

Page 365

635 F.2d 365 7 Bankr.Ct.Dec. 813 In re STRATFORD OF TEXAS, INC., et al., Debtors.
The OFFICIAL CREDITORS COMMITTEE OF STRATFORD OF TEXAS,
INC., Etc., Appellants,
v.
STRATFORD OF TEXAS, INC., Class III Creditors Subcommittee
of the Official Creditors Committee, Collins
Electric Co., Inc., Appellees. No. 79-2129. United States Court of Appeals,
Fifth Circuit. Jan. 26, 1981.

Page 366

Ross, Banks, May, Cron & Cavin, Daniel H. Johnston, Jr., Robert R. Kamm, Houston, Tex., for appellants.

Sheinfeld, Maley & Kay, Frank R. Monroe, David B. Foltz; Jr., Houston, Tex., for Collins Elec. Co.

Appeal from the United States District Court for the Southern District of Texas.

Before HILL, RUBIN and ANDERSON, Circuit Judges.

R. LANIER ANDERSON, III, Circuit Judge:

The appellant, a subcommittee of creditors of Stratford of Texas and its subsidiaries in a Chapter XI bankruptcy proceeding, ¹ appeals from a determination of the

Page 367

district court that the appellee, Collins Electric Co., Inc. ("Collins"), is a Class 4 rather than a Class 3 creditor as defined in the "Consolidated Plan of Arrangement" adopted by a majority of the creditors on June 6, 1977. The determination allows Collins a larger dividend from the proceeds of the disposition of the debtors' assets with a concomitant decrease in the size of the appellant's dividend than was the alleged intention of the drafters of the plan of arrangement. We hold that the district court's interpretation of the arrangement was erroneous and reverse.

Stratford of Texas was a diversified agricultural conglomerate. A substantial aspect of its operation was its cattle program. Stratford solicited investments to purchase, raise and sell cattle. The investor was guaranteed a minimum return on his investment as well as certain immediate tax benefits. The investment was evidenced by cattle services contracts. Collins had invested in several cattle programs over the years. The most recent contract matured in late October, 1976, but Stratford, hampered by serious cash flow problems, was unable to repay the investment at that time. Collins agreed to cancel the cattle services contract and to accept a promissory note as a means of deferring payment of the money owed under the cattle services contract. Stratford executed a non-negotiable promissory note in the principal amount of $398,490 plus nine percent interest in favor of Collins. The note was secured by collateral and was guaranteed by two of Stratford's subsidiaries, Delta Industries, Inc. and Sherman County Feedyard, Inc.

Stratford, by and through its subsidiaries, notably the Green Thumb Corporation and Green Thumb Products Corporation, also operated substantial floriculture operations. These operations possessed substantial assets and, unlike the cattle operation, the floriculture operations were conventionally financed and most of their indebtedness was to trade creditors, i. e., suppliers of goods and services for these operations. Stratford, in contrast, had few trade creditors and most of its debt was in cattle services contracts.

In January 1977, the various debtor companies filed a Chapter XI bankruptcy proceeding. As contemplated by the old Bankruptcy Act, the creditors organized into committees to formulate an arrangement for the disposition of the assets and the disbursement of the proceeds. The initial proposal was that the cattle investors and the trade creditors should be treated equally; however, the trade creditors resisted equal treatment, and insisted upon dual treatment of trade creditors and cattle investors. The creditors committees finally resolved to create four categories of creditors. ² The first two categories consisted of priority claims and unsecured claims of $1,000 or less respectively. Class 3 consisted of "(a)ll Unsecured Claims not included in Class 2 which are (i) held by any party to a cattle services contract with, or any similar agreement providing for the care and feeding of cattle by, any Debtor or by a limited partner in any partnership in which any Debtor is or was a general partner or (ii) held by The Paul Revere Life Insurance Company." Class 4 consisted of "(a)ll Unsecured Claims not included in Class 2 or Class 3." Thus, most of the trade creditors fell within Class 4. Two separate funds were to be created to pay Class 3 and Class 4 debts. It was estimated that Class 3 creditors (cattle investors) would receive about thirty-five cents on the dollar and Class 4 creditors (trade creditors) would receive about fifty-eight cents on the dollar. Those estimates, however, were based on the assumption that Collins was a Class 3

Page 368

(cattle investor) creditor. ³ The creditors committees and debtors prepared solicitation material containing these payment projections and mailed the materials to all the creditors. The plan was accepted on June 1, 1977, by a majority in number and amount of unsecured creditors. ⁴ On June 6, 1977, the...