W. F. Hurley, Inc., In re

• Decision Date: 06 May 1976
• Docket Number: No. 76-1234,76-1234
• Citation: 553 F.2d 1096
• Parties: In re W. F. HURLEY, INC., Debtor. W. K. INGRAM, Trustee, Appellee, v. MARTRAC FARMS, INC., et al., Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1096

553 F.2d 1096

In re W. F. HURLEY, INC., Debtor W. K. INGRAM, Trustee, Appellee, v. MARTRAC FARMS, INC., et al., Appellants.

No. 76-1234.

United States Court of Appeals Eighth Circuit.

Submitted Dec. 14, 1976.

Decided April 7, 1977.

As Amended on Denial of Rehearing May 6, 1976.

Daniel R. Elkins, Baytown, Tex., for appellants.

Ben F. Arnold, Little Rock, Ark., for appellee.

Before STEPHENSON, WEBSTER and HENLEY, Circuit Judges.

HENLEY, Circuit Judge.

This bankruptcy appeal comes to us from the United States District Court for the Eastern District of Arkansas, Northern Division ¹ and involves a conflict of jurisdiction between that court, sitting in bankruptcy, and the United States District Court for the Southern District of Texas, Houston Division, also sitting in bankruptcy.

Eight Arkansas corporations, hereinafter referred to as the Hurley companies or simply as Hurley, are in the process of reorganization in the Arkansas court in consolidated proceedings under Chapter X of the Bankruptcy Act, 11 U.S.C. §§ 501 et seq. All of those corporations are subsidiaries of a Texas corporation, Martrac Farms, Inc., which is a debtor in possession in an arrangement proceeding that is being conducted in the Texas court under Chapter XI of the Act, 11 U.S.C. §§ 701 et seq. The proceedings in Arkansas and the proceeding in Texas have been referred generally to the bankruptcy judges of the respective district courts.

The Arkansas proceedings were in fact commenced in the Texas court as Chapter XI proceedings along with the Chapter XI proceeding commenced by Martrac. However, in June, 1975 the Texas bankruptcy judge after hearing determined that the cases of the Hurley companies should be transferred to Arkansas. They were transferred, and after the transfer they were consolidated with each other and with three other Chapter XI proceedings which had been commenced in Arkansas and which involved three of the Hurley companies.

The Arkansas bankruptcy court appointed W. K. Ingram receiver of the Hurley companies and also directed that those companies furnish within a limited time an indemnity bond in the sum of $1,000,000.00 as a condition to being permitted to continue to seek arrangements under Chapter XI. The companies were not able to furnish the bond, and in July, 1975 the proceedings were voluntarily converted into reorganization proceedings under Chapter X. Those proceedings are now pending in Arkansas, and Martrac's Chapter XI proceeding is now pending in Texas. As stated, Martrac occupies the status of a debtor in possession in the Chapter XI case, and is largely under the control of its president and sole or principal stockholder, Alvin Charles Sue.

After the Arkansas proceedings were converted into reorganization proceedings under Chapter X, Mr. Ingram, who has been mentioned, was appointed trustee in reorganization and is acting as such at this time.

Prior to the commencement of the over-all proceedings the Hurley companies, with one exception, were engaged in the business of farming or in operations closely related to farming. Considered collectively, they owned several thousand acres of farm land, including the Denton Farm and the Otter Lake Farm, together with agricultural machinery and equipment; they also owned and operated such facilities as cotton gins and elevators or warehouses for the storage of such agricultural products as soy beans and rice. Some of the companies were also engaged in the buying and selling of agricultural commodities.

The duties of Mr. Ingram, first as receiver and later as trustee, involved his taking over the assets of the companies, leasing the farm lands for 1976, ascertaining the debts owed by the companies, collecting moneys that were due to them, and formulating ultimately a plan for the reorganization of the companies which would meet with the approval of the Arkansas court and of the requisite number of the creditors of the debtor corporations.

By mid-December, 1975 the Trustee had arranged tentatively for the leasing of all of the farms, including the Denton Farm and the Otter Lake Farm, to a single lessee for a basic cash rent of $500,000.00. The trustee had also worked out a reorganization plan which involved, among other things, a sale of all of the farm lands to a corporation formed by foreign investors for a price of $7,900,000.00, with the sale to be closed not later than the spring and early summer of 1976. The plan involved the elimination of Martrac's stock ownership in the Hurley companies.

The trustee's proposed lease and the plan were noticed for hearing before the bankruptcy judge on January 19, 1976. The plan was opposed by Martrac. At the end of the first day of the hearings, they were adjourned at the instance of the bankruptcy judge but later were scheduled to be resumed on February 2.

For a period of several months prior to January 19, 1976 the trustee and Martrac had been engaged in a number of controversies. Those controversies involved ownership of the Denton Farm and of stock in Denton Brothers, Inc., one of the Hurley companies, leasehold rights of Martrac with respect to the Otter Lake Farm, the rights of the trustee to sell certain items of personal property, the status of accounts between Martrac on one hand and the respective Hurley corporations on the other hand, and the plan itself which Martrac claimed had an unduly adverse effect upon it and upon its own creditors who were involved in the Chapter XI proceeding.

Between September 8, 1975 and about January 19, 1976 Martrac commenced five "adversary proceedings" in the Texas court which were designed to have the controversies that have been mentioned adjudicated in that court although the Arkansas court was fully competent to adjudicate them. And although the Texas bankruptcy judge was aware of the Chapter X proceedings that were pending in Arkansas and was aware that the trustee was contesting the jurisdiction of the Texas court, that court granted certain preliminary relief against the trustee with some of it being granted ex parte and without notice. That relief included two show cause orders against the trustee that were made returnable on January 26, 1976.

On January 21, 1976 the trustee filed a petition in the Arkansas court seeking a preliminary and permanent injunction restraining the Texas bankruptcy court from taking further actions in the proceedings that have been mentioned. The trustee claimed that such relief was necessary to protect the jurisdiction of the Chapter X court and to protect the trustee from interference and harassment resulting from continuing proceedings in the Texas court which affected the Arkansas corporations, their assets and the plan of reorganization which the trustee had formulated.

Since the trustee sought to enjoin the Texas court itself rather than litigants therein, the petition was addressed to District Judge Terry L. Shell who presides over the Northern Division of the Eastern District of Arkansas rather than to Bankruptcy Judge Charles W. Baker to whom the proceedings had been referred. See 11 U.S.C. § 11(a)(15).

The trustee noticed his petition for a preliminary injunction for hearing on January 22, 1976 and served notices on a number of respondents, including Martrac and Sue. The hearing was held as scheduled; Martrac and Sue appeared by counsel and participated in the hearing resisting the trustee's petition. A number of other interested parties also appeared.

On the date of the hearing counsel for trustee learned that earlier in the day Martrac had filed a sixth proceeding in the Texas court which was denominated a motion for venue determination and was purportedly based on Bankruptcy Rule 10-114(c). The object of that motion was to have the Texas court transfer the Chapter X cases back to Texas where they had been commenced as Chapter XI cases.

Although no testimony was taken at the hearing, it consumed several hours; it consisted mainly of arguments, statements and discussions between court and counsel. The matter was finally submitted on copies of pertinent documents that had been filed in Texas and the voluminous record that had been assembled in the Arkansas court.

On January 23, 1976 Judge Shell filed detailed findings of fact and conclusions of law and granted the preliminary injunction sought by the trustee. The operative part of his order was as follows:

NOW THEREFORE, this Court does hereby enter its preliminary injunction until further order of this Court, enjoining the Bankruptcy Court in the United States District Court for the Southern District of Texas, Houston Division, from taking any action or hearing any proceedings or issuing any orders which touch upon any of the rights, duties, obligations or activities of the Debtor Corporations consolidated in this cause and known as W. F. HURLEY, INC., or of the Trustee herein, W. K. Ingram, and in particular the six matters now pending in the Martrac case and specifically mentioned hereinbefore. This injunction is not to be construed as enjoining any activity in the Martrac case which deals solely with Martrac and does not determine any right of W. F. Hurley, Inc., or its Trustee.

Martrac and Sue immediately appealed from that order, and we have jurisdiction of the appeal by virtue of 28 U.S.C. § 1292(a)(1).

For reversal respondents contend that the hearing on January 22 was held without adequate notice in violation of Fed.R.Civ.P. 6(d), that there was no "evidence" to support the findings and conclusions of the district court, that the findings and conclusions were inadequate, that the district court exceeded its jurisdiction and abused its discretion in granting injunctive relief, and that the relief granted was in any event too broad.

The view that we take of the case renders it unnecessary for us to discuss all of the issues raised by the respondents in great detail.

Respondents' contention based on the trustee's alleged failure to comply with...