X-Cel, Inc., Matter of

• Decision Date: 23 October 1985
• Docket Number: INC,No. 84-3132,X-CE,84-3132
• Citation: 776 F.2d 130
• Parties: 13 Collier Bankr.Cas.2d 1060, 3 Fed.R.Serv.3d 154, Bankr. L. Rep. P 70,810 In the Matter of, d/b/a Sizzler Family Steak House, Debtor-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 130

776 F.2d 130

13 Collier Bankr.Cas.2d 1060, 3 Fed.R.Serv.3d 154,

Bankr. L. Rep. P 70,810

In the Matter of X-CEL, INC., d/b/a Sizzler Family Steak House, Debtor-Appellant.

No. 84-3132.

United States Court of Appeals Seventh Circuit.

Argued June 7, 1985.

Decided Oct. 23, 1985.

Louis W. Levit, Levit & Mason, Ltd., Chicago, Ill., for debtor-appellant.

David P. Leibowitz, Schwartz, Cooper, Kolb & Gaynor, Chtd., Chicago, Ill., for appellee.

Before FLAUM and EASTERBROOK, Circuit Judges, and SWYGERT, Senior Circuit Judge.

FLAUM, Circuit Judge.

Debtor-appellant X-Cel, Inc. appeals an order entered by the bankruptcy court allowing in full, with interest, a creditor's claim in X-Cel's Chapter 11 proceeding. The district court affirmed the order, 46 B.R. 202 (N.D.Ill.1984), holding that the bankruptcy court's findings were not clearly erroneous. Aside from disputing the merits of the creditor's claim, X-Cel argues on appeal that we should subject those findings to closer scrutiny, asserting that the "clearly erroneous" standard of review set forth in Rule 52(a) of the Federal Rules of Civil Procedure is inapplicable. For the reasons set forth below, we hold that the clearly erroneous standard is applicable in this instance. Nevertheless, the lack of clear findings upon which to base even a minimal degree of appellate scrutiny compels us to reverse and remand this cause to the district court, directing it to solicit new findings from the bankruptcy court.

I.

The claim allowed by the bankruptcy court arose out of advertising services performed by A. Eicoff & Company ("Eicoff"). At the time that Eicoff's claim arose, X-Cel operated several Sizzler Steak House franchises in the Chicago area. In 1981, X-Cel and three other corporations that also operated Chicago-area Sizzler franchises entered into an advertising agreement with Eicoff. The agreement provided that Eicoff was to act as an agent for the group of franchisees in purchasing television time and newspaper space in which to run Sizzler advertisements.

According to the parties' briefs, the dispute in issue had its inception in the events surrounding an involuntary Chapter 7 bankruptcy petition filed against X-Cel in May, 1982. Before it received notice of the petition, X-Cel's Chief Executive Officer, Siemieniak, had mailed a check to Eicoff for $20,008.48, in payment of its share of costs and commissions due Eicoff for advertising placed before April 1, 1982. According to X-Cel, it shortly thereafter learned of the petition and stopped payment on its check in order not to prefer Eicoff's claims over those of other creditors. X-Cel asserts that it simultaneously notified Eicoff that it was terminating the advertising agreement. Meanwhile, however, Eicoff had purchased on behalf of the group ninety days of television advertising for a "steak and all you can eat shrimp" campaign, allegedly in reliance upon X-Cel's payment of its delinquent account. After a conversation with one of the other franchisees about X-Cel's cancellation, Eicoff continued the "steak and all you can eat shrimp" advertising campaign throughout the summer of 1982. X-Cel's franchises remained in operation during that time, with X-Cel as debtor in possession, and each participated in the "steak and all you can eat shrimp" promotion.

Although X-Cel later paid for the pre-April 1 advertising, it disputes the contention that it must pay for a share of the summer campaign and argues that the bankruptcy court erred in evaluating the merits of Eicoff's claim. According to X-Cel, Eicoff breached the advertising agreement because it had purchased advertising time and space before receiving written authorization from the franchisees. X-Cel further asserts that it was entitled unilaterally to terminate the agreement regardless of Eicoff's breach. We decline to reach these issues, however, in light of our conclusion that the case must be remanded for new findings.

II.

The bankruptcy court's order, in its entirety, states as follows:

THIS CAUSE coming on to be heard upon the trial of Claim No. 22 filed by A. Eicoff & Company ("Eicoff") against X-Cel, Inc., d/b/a Sizzler Family Steak House ("Debtor" or "Siemieniak"), the court having held a trial in said matter, having observed the demeanor of the witnesses, having examined the documents admitted into evidence, having heard arguments of counsel and having read the memorandum in support of the various positions of the parties, and being fully advised in the premises DOTH FIND as follows:

1. This court has jurisdiction over the subject matter and over the parties hereto.

2. The court hereby adopts as its findings the factual statements as stated in the Memorandum in Support of Allowance of Claim No. 22 filed by Eicoff, a copy of which is attached hereto and made a part hereof and is expressly incorporated herein.

NOW, THEREFORE, IT IS HEREBY ORDERED, ADJUDGED and DECREED that Claim No. 22 for A. Eicoff & Company is hereby allowed in the amount of $158,401.42, plus per diem interest in the amount of $65.73 commencing December 1, 1983 and continuing thereafter until payment is made.

X-Cel argues that the bankruptcy court's incorporation of Eicoff's memorandum compels us to abandon the clearly erroneous standard of review set forth in Rule 52 of the Federal Rules of Civil Procedure. ¹ X-Cel cites the Rule 52 directive that "[i]n all actions tried upon the facts without a jury ..., the Court shall find the facts specially and state separately its conclusions of law thereon." Appellant reasons that where a court fails to follow this directive and simply adopts the findings of fact and conclusions of law of a party, those findings and conclusions are entitled to no weight whatsoever in a reviewing court. In such a situation, then, the reviewing court would submit the record to independent scrutiny.

X-Cel's position is not without some support. This court has on several occasions indicated its preference for independent findings. See, e.g., Photovest Corp. v. Fotomat Corp., 606 F.2d 704, 731 (7th Cir.1979), cert. denied, 445 U.S. 917, 100 S.Ct. 1278, 63 L.Ed.2d 601 (1980). While criticizing the practice of adopting findings, however, we nevertheless have consistently refused to abandon the clearly erroneous standard of review and substitute our judgment for that of the trial court. See, e.g., Garcia v. Rush-Presbyterian-St. Luke's Medical Center, 660 F.2d 1217, 1220 (7th Cir.1981); Loctite Corp. v. Fel-Pro, Inc., 667 F.2d 577, 582-83 (7th Cir.1981); Schwerman Trucking Co. v. Gartland Steamship Co., 496 F.2d 466, 474-75 (7th Cir.1974).

The success of X-Cel's argument is now completely precluded by the Supreme Court's recent decision in Anderson v. City of Bessemer City, --- U.S. ----, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). In that case, the court noted that although it has "criticized courts for their verbatim adoption of findings of fact prepared by prevailing parties," such adopted findings nevertheless "are those of the court and may be reversed only if clearly erroneous." Id. at 1511. We recently had occasion to follow this approach in Scandia Down Corp. v. Euroquilt, Inc., 772 F.2d 1423 (7th...