Watts v. Liberty Royalties Corporation

• Decision Date: 30 August 1939
• Docket Number: No. 1773.,1773.
• Citation: 106 F.2d 941
• Parties: WATTS et al. v. LIBERTY ROYALTIES CORPORATION et al.
• Court: U.S. Court of Appeals — Tenth Circuit

106 F.2d 941 (1939)

WATTS et al. v. LIBERTY ROYALTIES CORPORATION et al.

No. 1773.

Circuit Court of Appeals, Tenth Circuit.

August 30, 1939.

Austin M. Cowan, of Wichita, Kan., and Eugene O. Monnet, of Tulsa, Okl. (Royce H. Savage, Max Cohen, and Jack Paden, all of Tulsa, Okl., on the brief), for appellants.

A. Francis Porta, of El Reno, Okl., and O. L. Lupardus, of Tulsa, Okl. (Robt. W. Raynolds, of Tulsa, Okl., and Stanley E. Toland, of Iola, Kan., on the brief), for appellees.

Before PHILLIPS, BRATTON, and HUXMAN, Circuit Judges.

HUXMAN, Circuit Judge.

Liberty Royalties Corporation, herein referred to as the Corporation, is a Delaware Corporation, having its principal office in Tulsa, Oklahoma. M. H. Watts was appointed receiver of the Corporation on the 7th day of July, 1931, by the District Court of Tulsa County, Oklahoma. After the appointment of said state receiver and on April 1, 1932, the corporation's charter and franchise were canceled and forfeited by proclamation of the Governor of Delaware, for its failure to pay its annual license fees for the two years prior thereto.

On May 5, 1938, the corporation, by John Fernow, its last president, filed its voluntary petition for a corporate reorganization under Section 77B of the National Bankruptcy Act, 11 U.S.C.A. § 207, in the District Court of the United States for the Northern District of Oklahoma. The petition was filed without having been first authorized by the Board of Directors, but on the 6th day of June, 1938, the Board of Directors, at an adjourned meeting, ratified this action.

On May 11, 1938, the District Judge approved the Corporation's petition for reorganization as properly filed. On May 19 the Corporation filed an application for the appointment of permanent trustees and on said date an order was filed fixing June 6 as the date for the hearing of the petition and requiring that notice thereof be given. This hearing was continued from time to time until August 9, 1938.

On June 2, Julia Boswell, a stockholder, intervened, objecting to said petition and asking the dismissal thereof. On June 9 the motion of the state receiver for dismissal of the petition for reorganization was denied. On June 19, 1938, a petition was filed by stockholders representing in the aggregate more than five per cent of the total issued and outstanding preferred stock of said corporation, objecting to the petition for reorganization and praying for its dismissal.

On the 9th day of August an order was entered approving the petition for corporate reorganization and providing for the appointment of permanent trustees with power to act. In the order of August 9 the trial court set out in detail the various appearances and pleading which had been filed and the continuances which had been taken. The court found that the matter should be determined upon its merits, and after hearing the evidence of all the parties and the argument of counsel, found that trustees should be appointed, and did appoint such trustees. From this order an appeal was taken by the various parties, including the state receiver and the five per cent of preferred stockholders, to this court on the 6th day of September, 1938.

On the 10th day of February, 1939, the secretary of the state of Delaware, having received from John Fernow, the last acting president, and F. W. Kessler, the last acting secretary of the corporation, a certificate for the restoration and revival of the charter, accompanied by the delinquent fees, issued a certificate renewing and restoring said corporation to all its charter rights under the laws of Delaware.

A motion for dismissal has been filed by the Corporation on the ground that the appeal was not taken within time. The appeal was taken under Section 25a of the Bankruptcy Act, 11 U.S.C.A. § 48(a), which requires that it be taken within thirty days. It is argued that the questions relating to the sufficiency of the petition and the jurisdiction of the court were determined in the orders of May 11 and June 9; that the portions of the order of August 9th relating to such matters were mere reiteration; and that more than thirty days having elapsed between said orders of May 11 and June 9 and the taking of the appeal, the same should be dismissed.

Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, authorizes stockholders holding five per cent in number of all shares of any class of outstanding stock of the debtor to object to a petition for reorganization prior to the hearing held for the purpose of appointment of trustees of the trust estate, and provides that upon such objections filed the petition shall be dismissed unless the material allegations of the petition or answer are sustained by the proofs. This is the only authorization contained in the statute for objections to the petition.

It is not necessary to decide whether individual stockholders or holders of less than five per cent of the outstanding stock of any issue have any standing in court or whether the state receiver has any standing in court to object.

The order of June 9 dealt only with the objections filed by the state receiver. The stockholders who, by the terms of the statute, had the right to file an objection, had not filed their petition, nor had the date for the filing thereof expired.

The ruling of the court on the objections of a single stockholder or of a state receiver could not be binding upon those expressly authorized by the statute to object, nor could it preclude them of their rights to be heard and to appeal from the decision on their petition when they had not filed their objections at the time the former ruling was made. The petition of the five per cent intervening preferred stockholders, objecting to the attempted reorganization and to the appointment of permanent trustees, was denied on the 9th day of August, 1938, and they appealed on the 6th day of September, 1938. This appeal was within the thirty day period provided by statute and is in time. The motion to dismiss cannot be sustained.

Two further questions remain for consideration. First, did the Liberty Royalties Corporation on May 5, 1938 have power to institute a voluntary proceeding for its reorganization under the provisions of Section 77B; and, second, if it did, does the petition filed by the debtor and the evidence in support thereof satisfy the statutory requirement that the debtor be unable to meet its debts as they mature, and was there necessity for reorganization?

Appellant contends that the corporation is prohibited from maintaining a voluntary action for reorganization by the fact that more than three years prior to the filing of its petition, its charter had been forfeited for the non-payment of fees to the state of Delaware. It is claimed that the failure to pay these fees automatically forfeited and canceled its charter and its corporate franchises...