Tennessee Pub. Co. v. Carpenter
| Decision Date | 07 December 1938 |
| Docket Number | No. 7821.,7821. |
| Citation | 100 F.2d 728 |
| Parties | TENNESSEE PUB. CO. v. CARPENTER. |
| Court | U.S. Court of Appeals — Sixth Circuit |
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Jordan Stokes, Jr., of Nashville, Tenn. (Jordan Stokes, Jr., of Nashville, Tenn., on the brief), for appellant.
Cecil Sims, of Nashville, Tenn. (Harley G. Fowler, of Knoxville, Tenn., Cecil Sims, of Nashville, Tenn., Fowler & Fowler, of Knoxville, Tenn., and Bass, Berry & Sims, of Nashville, Tenn., on the brief), for appellee.
Before HICKS, SIMONS, and ALLEN, Circuit Judges.
Appeal from a decree confirming sale of appellant's properties, from an order striking from the files appellant's amended answer and counterclaim, and from an order denying petition for rehearing.
Appellee filed a creditor's bill on March 3, 1933, as receiver of a national bank which held certain overdue notes and bonds as collateral therefor, secured by a mortgage held by named trustees on the physical property of appellant. On the same day the District Court appointed a receiver ex parte to administer appellant's assets. Appellant answered on May 8, 1933, and on June 3, 1933, the court approved the bill as a general creditor's bill, and ordered the standing master to report the names of all of appellant's creditors, whether they had liens, and the amounts respectively due to each. In 1935 appellant filed a petition under § 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, seeking corporate reorganization, which the District Court dismissed. That decision was affirmed by this court in Tennessee Publishing Co. v. American National Bank, 6 Cir., 81 F.2d 463, and by the Supreme Court 299 U.S. 18, 57 S.Ct. 85, 81 L.Ed. 13.
The District Court on May 20, 1935, granted appellee's petition filed the same day to amend the original bill, making the trustees of the mortgage indenture parties defendant. No actual service was secured under this amendment. The trustees on January 13, 1937, waived service of process and answered, alleging that they had no assets nor property of appellant in their hands as trustees, and prayed that any decree entered discharge their obligations.
The District Court on March 20, 1936, ordered that appellant's assets be sold on June 1, 1936. The sale was later postponed until January 7, 1937, subsequent to the decision of the Supreme Court in the reorganization proceeding. On January 6, 1937, appellant filed a motion to vacate the receivership and set aside the order of sale, and amended the motion on the day of sale to object to the failure of appellee to have the trustees made parties defendant on filing of the original bill. This motion was overruled on January 7, 1937, and two days later the receiver filed his report of the sale. Two unsecured creditors, who later withdrew from the proceeding, excepted to the receiver's report of the sale, but appellee did not except thereto. On January 30, 1937, appellant filed an application that the District Judge be recused, and proceed no further in the case. On motion of appellee this application and accompanying affidavits were stricken from the record on March 5, 1937.
Appellant raises many objections to the confirmation of sale and to various proceedings prior thereto, between March 3, 1933, and March 10, 1937. The most important are the following:
(1) That the court's order appointing a receiver ex parte was void because the bill did not set forth a cause of action justifying such relief.
(2) That appellee is a simple contract creditor, and therefore not entitled to receivership.
(3) That the proceedings are void because of the failure to join indispensable parties, namely, the trustees under the indenture.
(4) That the District Court erred in finding appellant insolvent upon the admissions in its answer without the taking of testimony.
Upon the point that the bill did not contain sufficient allegations to justify the that the bill alleged in substance that apreceiver's appointment ex parte, we note that its physical assets were approximately pellant owed approximately $1,500,000, and $337,000; that for several years appellant had operated at the following net losses:
1929 .................. $ 18,779.79
1930 .................. 125,977.00
1931 .................. 133,900.34
1932 .................. 83,750.82
that appellant's current gross income was less than its operating expenses; that appellant was unable to pay salaries and wages, and that its checks issued for payment of wages had been returned unpaid because of insufficient funds; that it was highly probable that appellant would discontinue the publication of its newspapers, because of financial inability to secure news print, for which it was compelled to pay cash, thereby destroying the good will, losing its subscriptions, and forfeiting its Associated Press franchise, valued by appellant in its statements to appellee at $500,000, and that all of these assets depend absolutely upon the daily issuance of its newspapers, and that in the event appellant should cease publication of its daily editions even temporarily, the value of its assets would be greatly diminished and perhaps totally lost; that city and county taxes were past due and unpaid, and the Secretary of State had already issued a distress warrant for unpaid capital stock taxes of appellant; that appellant's managing officers had been convicted of a crime under the banking laws, forcing them to abandon appellant's business, so that the corporation was drifting in hopeless financial condition; that because of its great financial stress appellant had permitted its machinery, equipment and presses to get out of repair; that according to appellant's post office statements, required by federal law, appellant had lost approximately 16,000 subscriptions during the past two years; that appellant on May 1, 1933, would be required to pay $22,500 of coupons maturing on its bonds, and that within the next twelve months appellant would be required to deposit with the trustees under the indenture an additional sum of $100,000, as a sinking fund, both of which payments would be impossible, and that the failure to pay taxes was a default under the conditions of the indenture.
The bill further alleges that because of the facts set forth there was immediate and urgent necessity for receivership to prevent irreparable injury, and prays that the receiver be empowered immediately to take possession of all of the properties of appellant, with full power to use, operate, manage and control the same and continue the business. It alleges that if notice to appellant is required before the appointment of a receiver, the object and purpose of the bill would be greatly endangered as the delay would result in continued wasting of the assets and would prevent the raising of immediate operating funds imperatively required by the existing emergency, and might result in the discontinuance of all activity on the part of appellant, thereby destroying the good will. The bill was properly verified.
It is of course the general rule that appointments of receivers are not made ex parte and without notice. "The remedy in such circumstances is not to be granted loosely, but is to be watched with jealous eyes." Shapiro v. Wilgus, 287 U.S. 348, 356, 53 S.Ct. 142, 145, 77 L.Ed. 355, 85 A.L.R. 128. The receivership must be justified by the existence of actual emergency. But federal courts of equity have jurisdiction to make such appointments upon proper showing. Lively v. Picton, 6 Cir., 218 F. 401; Interstate Refineries, Inc., v. Barry, 8 Cir., 7 F.2d 548. The appointment of a receiver without notice is entirely a matter of judicial discretion. Taylor v. Easton, 8 Cir., 180 F. 363, 367. We can not say that the District Court abused its discretion in making the appointment, in view of the emergencies described in the bill.
As to the question whether appellee was a simple contract creditor and that the court therefore had no jurisdiction to appoint a receiver, the record completely disposes of appellant's contention. The bill averred that the bonds held by appellee as collateral for appellant's debt to appellee of some $107,000, were secured by an indenture under which appellee had a lien upon the property and assets of the appellant. The property was specifically described, and the prayer of the bill was for a sale of the assets, taking into consideration the rights of secured creditors under the indenture.
As a general rule, simple contract creditors whose claims have not been reduced to judgment and who have no express lien on the debtor's property have no standing in a federal court of equity to seize the property of the debtor and apply it to payment of their debts. Hollins v. Brierfield Coal & Iron Co., 150 U.S. 371, 14 S.Ct. 127, 37 L.Ed. 1113. Appellant in its answer did not deny the allegation that appellee was a lien creditor, stating that "Respondent neither admits nor denies the allegations of Section 5 of paragraph V of the petition" (pertaining to the existence of a lien in favor of appellee), "but states that said Trust indenture will show such properties as was conveyed." Since the averment that appellee was a lien creditor was not denied, under Equity Rule 30, 28 U.S.C.A. following section 723, it was deemed confessed. The standing master, after numerous hearings in which the indenture was considered, determined that appellee and other bondholders had secured claims, and that they "from the uncontradicted proof not only have a secured claim in the respective amounts, together with interest as referred to above, but that said claims are secured by a pro rata interest evidenced by the amount of bonds held by each of said claimants, in and to the property, owned by or held for the benefit of the Tennessee Publishing Co. * * * that said deed of trust constitutes a valid lien or mortgage upon the property of the Tennessee Publishing Co."
It does not appear that any exceptions were filed by app...
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