United States v. Luther, 4928

• Citation: 225 F.2d 499
• Decision Date: 27 July 1955
• Docket Number: No. 4928,4929.,4928
• Parties: UNITED STATES of America, Appellant, v. Frank LUTHER, Trustee of the Garden Grain & Seed Co., Inc., Appellee. Frank LUTHER, Trustee of the Garden Grain & Seed Co., Inc., Cross-Appellant, v. UNITED STATES of America, Cross-Appellee. In the Matter of GARDEN GRAIN AND SEED CO., Inc., Bankrupt (two cases).
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

225 F.2d 499 (1955)

UNITED STATES of America, Appellant, v. Frank LUTHER, Trustee of the Garden Grain & Seed Co., Inc., Appellee.

Frank LUTHER, Trustee of the Garden Grain & Seed Co., Inc., Cross-Appellant, v. UNITED STATES of America, Cross-Appellee.

In the Matter of GARDEN GRAIN AND SEED CO., Inc., Bankrupt (two cases).

Nos. 4928, 4929.

United States Court of Appeals Tenth Circuit.

July 5, 1955.

Rehearing Denied July 27, 1955.

COPYRIGHT MATERIAL OMITTED

John G. Laughlin, Atty., Dept. of Justice, Washington, D. C. (Warren E. Burger, Asst. Atty. Gen., William C. Farmer, U. S. Atty., Wichita, Kan., and Melvin Richter, Atty., Dept. of Justice, Washington, D. C., on the briefs), for appellant and cross-appellee.

Malcolm Miller, Wichita, Kan., for appellee and cross-appellant.

Before PHILLIPS, Chief Judge, and BRATTON, HUXMAN, MURRAH and PICKETT, Circuit Judges.

Rehearing Denied in No. 4928 July 27, 1955.

PHILLIPS, Chief Judge.

Garden Grain and Seed Co., Inc.¹ doing business under the corporate and warehouse laws of the State of Kansas, operated grain warehouses at Garden City, Ingalls, and Pierceville, Kansas. On January 16, 1952, the Grain Company was adjudged an involuntary bankrupt. A trustee in bankruptcy was appointed and, in addition to the general assets of the Grain Company, took possession of 490,560 pounds of wheat and 4,320,900 pounds of milo, which the Grain Company held in storage for the Commodity Credit Corporation² and others at the inception of the bankruptcy.

On August 15, 1952, the United States, in behalf of its wholly owned corporate instrumentality, Commodity filed its proof of claim in the bankruptcy proceeding.

This is an appeal from an order of the referee in all respects confirmed by the district court on a petition for review, allowing in part and disallowing in part such claim. In its claim the United States alleged, inter alia, that the Grain Company was indebted to it in the aggregate amount of $148,059.89; that 207,696.12 cwt. of milo and 20,941.71 bushels of wheat had been stored with the Grain Company, pursuant to Uniform Grain Storage Agreements, executed on June 9, 1949, and July 1, 1950; that Commodity either held warehouse receipts for such grain at the inception of bankruptcy or had surrendered warehouse receipts for such grain without obtaining delivery prior to bankruptcy; that during the period from October 17, 1950, to May 23, 1951, Commodity surrendered warehouse receipts and issued loading orders to the Grain Company requiring it to load out and deliver 187,207.16 cwt. of milo; that no shipping orders were issued by Commodity to the Grain Company for the remaining 20,488.96 cwt. of milo nor for the 20,941.71 bushels of wheat and that Commodity still owns warehouse receipts from the Grain Company for such milo and wheat; that the market value of such undelivered milo was $52,554.18 and the market value of such undelivered wheat was $49,317.73; that Commodity is the owner of 10,811.06 cwt. of milo which the Grain Company failed to deliver pursuant to shipping orders and of 20,488.96 cwt. of milo and 20,941.71 bushels of wheat for which no shipping orders were issued by Commodity to the Grain Company, and that if the Grain Company or the trustee has sold or otherwise disposed of such milo and wheat and is unable to deliver possession thereof to Commodity, then the proceeds of such milo and wheat are the property of and should be paid to Commodity.

By the terms of a Storage Guarantee Agreement, entered into on April 3, 1950, the Grain Company agreed to construct a new elevator at Pierceville, Kansas, and to reserve 75 per cent of its capacity for grain tendered for storage by Commodity or by farmers for storage for their account, and Commodity agreed that if the average occupancy of the facility for any reason should be less than 75 per cent of the storage capacity, Commodity would pay the additional charges specified in Paragraph 8 of the Agreement. The Pierceville elevator was completed and ready for occupancy on October 30, 1950. In December, 1951, the Grain Company filed a corrected voucher of $8,094.29 for charges under such Paragraph 8 for the year commencing October 30, 1950, and ending October 31, 1951. Seventy-five per cent of the claim, or $6,070.72, was provisionally paid on December 18, 1951.

In its proof of claim the Government sought to recover the amount of the provisional payment on the ground that the Grain Company had violated the terms of the Uniform Grain Storage Agreements and the Storage Guarantee Agreement.

The balance of the Government's claim of $148,059.89 is made up of storage overcharges, quality deficiencies on grain delivered, and other items which are not now in dispute.

The trustee sold the 490,560 pounds of wheat and 4,320,900 pounds of milo, which the Grain Company had in storage at the inception of bankruptcy. He received $18,271.25 for such wheat and $103,995.25 for such milo, and now holds the proceeds of such sales for ultimate disposition to storage claimants. The funds are referred to as the Milo Fund and the Wheat Fund.

The trustee filed interpleaders in the bankruptcy proceeding in which he set up that he had in his possession $103,995.25, proceeds of the sale of milo which came into his possession; that there should be added to such Milo Fund $11,961.19 received from milo in transit at the time bankruptcy ensued and $228,521.56, the value of 9,642,260 pounds of milo which the trustee was seeking to recover from Commodity; that there had been filed with the trustee numerous claims by individuals who alleged that they held warehouse receipts for milo and numerous claims by individuals who alleged that they had placed milo with the Grain Company on open storage.

He further set up that he had in his possession $18,271.25, the proceeds of the sale of wheat which came into his possession, and that numerous claims for wheat had been filed by parties alleging that they had stored wheat with the Grain Company which had not been delivered to them.

He further set up the filing of the claim of Commodity.

The trustee asked that various claimants, including Commodity, be interpleaded, and that their respective rights in the Milo and Wheat Funds be adjudicated.

The trustee also filed what he captioned "Action To Recover The Value of 9,642,260 lbs. of Yellow Milo Obtained By Commodity Credit Corporation From Bankruptcy Within Four Months of Bankruptcy, Which Constitutes A Preference." In that pleading the trustee alleged that Commodity had issued loading orders for milo and had surrendered warehouse receipts to the Grain Company at the time the loading orders were issued; that before shipments were made pursuant to the loading orders, Commodity learned of grain shortages in the storage facilities of the Grain Company and caused an audit to be made of the Grain Company's books and records on October 7, 1951, which audit was completed, written and delivered to Commodity on October 18, 1951; that on October 7, 1951, Commodity knew that the Grain Company was 88 per cent short in its storage obligations; that Commodity induced the Grain Company to give preference to shipments to Commodity, knowing that "the bankrupt did not have for its account, nor did the bankrupt own, the grain so shipped and that the grain shipped was not stored grain," and that pursuant to such inducement the Grain Company shipped 9,642,260 pounds of milo to Commodity within the four-month period preceding bankruptcy; that such shipments were made when the Grain Company was, in fact, bankrupt and resulted in Commodity obtaining a greater percentage of its indebtedness than other creditors of the same class; that such shipments were made at a time when Commodity knew the Grain Company was bankrupt and that the grain shipped did not belong to Commodity.

The trustee prayed that Commodity be required to restore such milo or the value thereof, in the amount of $228,521.26.

In the action to recover, the trustee also sought recovery of the unpaid balance of the corrected voucher, in the sum of $2,023.57.

The United States moved to dismiss the so-called action to recover on the ground that the court lacked jurisdiction of the controversy and that the United States had not consented to the adjudication of the alleged preference in a summary proceeding. The motion was denied by the referee. Such asserted defenses were again raised in the Government's answer to the action to recover.

Early in September, 1951, a Kansas warehouse examiner, having statutory authority so to do, began an examination of the Grain Company's storage accounts. He found the records of the Grain Company were improperly kept and that there was a shortage of 132,235 bushels of milo in its storage account. About the same time an auditor of Commodity began an examination of the Grain Company's storage accounts and found it was short in its milo storage account more than 10,713,060 pounds and that the state examiner had failed to uncover that shortage. Subsequent to September 30, 1951, and after it had full knowledge of such shortages of the Grain Company's storage accounts, Commodity obtained from the Grain Company on loading orders 9,426,780 pounds of milo. No other storer of milo with the Grain Company withdrew any milo after September 30, 1951. In a written report made by Commodity's auditor on October 18, 1951, it was stated that the Grain Company was 88 per cent short in its storage liability.

The referee made findings of fact and filed a memorandum opinion and concluded that Commodity's claim should be allowed to the extent of $103,594.36. The referee found that Commodity was entitled to 3,130,002 pounds of milo and 769,802 pounds, or 12,830.03 bushels, of wheat.

The referee denied the right of the United States to recover the provisional payment and found that it was obligated under the Storage Guarantee Agreement to pay the trustee a balance of $12,829.28, after crediting Commodity...