York Intern. Bldg., Inc. v. Chaney

Decision Date23 October 1975
Docket Number74-1723,Nos. 74--1722,s. 74--1722
Citation527 F.2d 1061
PartiesIn the Matter of YORK INTERNATIONAL BUILDING, INC., Debtor. YORK INTERNATIONAL BUILDING, INC., Debtor, and Dr. Richard You, Stockholder, Appellants, v. Aaron M. CHANEY, Trustee, Appellee. YORK INTERNATIONAL BUILDING, INC., Bankrupt, and Dr. Richard You, Stockholder, Appellants, v. Aaron M. CHANEY, Trustee, et al., Appellees.
CourtU.S. Court of Appeals — Ninth Circuit
OPINION

Before BARNES, KILKENNY and GOODWIN, Circuit Judges.

KILKENNY, Circuit Judge:

Before us are appeals by a bankrupt corporation and its stockholder from orders of the district court (1) adjudging the corporation bankrupt, appointing a trustee, and authorizing distribution of all assets in complete liquidation, and (2) approving and directing the payment of certain administrative fees and expenses in the Chapter X bankruptcy proceeding.

The principal characters in the drama before us are:

Appellants:

York International Building, Inc. (York)--debtor and bankrupt;

Dr. Richard You (You)--debtor's stockholder.

Appellees:

Aaron M. Chaney (Trustee)--former trustee in Chapter X reorganization and present trustee in bankruptcy; H. William Burgess (Burgess)--attorney for trustee Massachusetts Mutual Life Insurance Company (Mass. Mutual)--principal secured creditor (mortgagee) of debtor, holding the first mortgage on substantially all the fixed assets of debtor;

Thomas P. Huber (Huber)--attorney for mortgagee;

Edward Y. N. Kim (Kim)--attorney for debtor.

HISTORY OF THE LITIGATION

In June, 1968, Mass. Mutual initiated a mortgage foreclosure proceeding against York in the Hawaii state courts. In September, 1968, corporate reorganization proceedings were commenced under Chapter X of the Bankruptcy Act, 11 U.S.C. § 501 et seq., staying action on the foreclosure claim. The district court appointed Chaney as trustee in reorganization.

In March, 1973, the district court, on trustee's application, authorized the sale of York's principal asset, a 12-story building and land situated in Honolulu. Appellants appealed the order of sale to this court (No. 73--2209). During the pendency of that appeal, but before its resolution, trustee requested the district court to grant a hearing under 11 U.S.C. § 636(2) to approve an order declaring York a bankrupt, directing the bankruptcy to proceed, authorizing trustee to distribute $5,000.00 to the stockholders in full satisfaction of their interests, authorizing trustee's dissolution of York, and directing the trustee in reorganization to distribute all remaining assets in complete liquidation to meet the claims of York's creditors. Proper notice of the proposed hearing was given to all interested parties. The trustee's notice did not mention the appointment of a trustee in bankruptcy. On February 15, 1974, the district court ordered that the hearing as proposed be set for February 25th. Trustee thereupon moved, in this court, that the district court be granted full authority to proceed on his pending motions in district court, which motion appellants opposed.

On February 25, 1974, two coincidental events occurred. This court entered an order in the pending appeal authorizing the trustee's proposed hearing under 11 U.S.C. § 636(2) to proceed as scheduled. 1 The district court record shows that this interlocutory order was filed in that court in Honolulu on February 28th.

The district court hearing on trustee's motion proceeded on February 25th. Testimony was heard, inter alia, on York's insolvency and the attempted reorganization's failure. The district court granted all elements of trustee's request, as described above, and then suggested the appointment of a trustee in bankruptcy. Over appellants' objection, the district court named Chaney to fill the position, his name having been placed in nomination by appellee Burgess, trustee's attorney. 2 The district court formalized its action in an order filed on February 26th. This order forms part of the basis of appellants' present appeal.

The proceedings were then assigned to the referee in bankruptcy, except for the allowance of administrative expenses in the reorganization phase. A hearing on the issue of administrative expenses was held on March 25, 1974. After a full hearing, the district court made awards to four of appellees (Chaney, Burgess, Mass. Mutual's attorney Thomas P. Huber, and York's attorney Edward Y. N. Kim) as 'reasonable compensation for services rendered in this proceeding,' pursuant to 11 U.S.C. §§ 641, 642. The amounts granted were in addition to previous awards made to appellees for similar services rendered. The specific awards are enumerated and analyzed below.

This court disposed of the pending appeal in No. 73--2209 on July 12, 1974, approving the order of sale of the real property. 3

ISSUES ON APPEAL

We state the principal issues as follows:

I. Did the district court have jurisdiction over the proceedings when it declared York bankrupt and made ancillary orders notwithstanding the pendency of No. 73--2209 in this court?

II. Do appellants have standing to challenge the district court's appointment of the trustee in bankruptcy?

III. Did the district court abuse its discretion in its award of administrative expenses to appellees?

THE JURISDICTIONAL ISSUE

Put in its simplest terms, appellants' argument is that on February 25--26, 1974, the district court ordered the bankruptcy without possessing requisite jurisdiction since the entire matter was jurisdictionally vested in this court under appeal No. 73--2209. More specifically, they contend the district court's February 26th order was necessarily dependent upon the outcome of the challenged order of sale in No. 73--2209 and thus inextricably bound with it. They note that an inadequate sale price for the building would render the corporation's finances inadequate to meet both the claims of unsecured creditors and the high administrative costs.

However, due to this court's interlocutory order of February 25, 1975, and the happenstance of time, appellants' argument is rendered meritless and we need not further explore its logic. Our February 25th order reinstated in the district court any essential jurisdiction it may have lacked to go forward with the matter of the bankruptcy proceeding. Sumida v. Yumen, 409 F.2d 654, 656--657 (CA9 1969).

The parties all concede that the clerk of the district court in Hawaii was notified of our decision by telephone by the clerk of this court on February 25th. This disposes of appellants' claim that the district court nevertheless acted without jurisdiction because it lacked actual notice of such jurisdiction. Additionally, our February 25th Memorandum was in response to a motion and so was not a 'judgment' under Rule 41, FRAP. As such, it took effect immediately upon being filed in this court and did not become subject to any stay of mandate or similar abeyance. The 'judgment' mentioned in Rules 37 and 41, FRAP, is obviously the final judgment on appeal, not an intermediate order, such as we entered on February 25th. Appellants' contention that there was some form of transoceanic suspension of jurisdiction in this case is meritless.

In so holding, we, of course, express no opinion on the now hypothetical question of what degree of jurisdiction, if any, the district court would have, had our February 25th order not preceded its own.

APPOINTMENT OF THE TRUSTEE IN BANKRUPTCY

Beyond question the district court was acting within its jurisdictional sphere in closing the Chapter X proceeding, entering the adjudication (reinstatement) in bankruptcy, and appointing the trustee. 11 U.S.C. §§ 636--638. That the district court had jurisdiction over all the Chapter X proceedings is clearly established by the provisions of 11 U.S.C. § 511.

However, appellants argue that in appointing appellee Chaney, as trustee in bankruptcy by its order of February 26th, the district court violated the meeting and notice requirements of the Bankruptcy Act. 11 U.S.C. § 638 governs the election or appointment of a trustee in bankruptcy in the context of an attempted Chapter X corporate reorganization, and by its mandate, 11 U.S.C. § 72 controls. That section provides:

'(a) The creditors of a bankrupt, exclusive of the bankrupt's relatives or, where the bankruptcy is a corporation, exclusive of its stockholders . . ., shall, at the first meeting of creditors after the adjudication, . . . appoint a trustee . . . of such estate. If the creditors do not appoint a trustee . . . the court shall make the appointment. . . .'

Such a creditors' meeting must meet the notice requirements of 11 U.S.C. § 94.

Appellants' challenge is defeated, however, by the threshold requirement of standing. The established purpose of the notice and creditors' meeting requirements is to protect creditors, not the bankrupt or the bankrupt's stockholders. Section 44 of the Act expressly excludes the latter from having a voice in the matter. The provisions are designed to prevent the election of a trustee too closely associated with the bankrupt, not to allow the bankrupt to prevent the election of a trustee it finds undesirable, which is apparently being attempted here. See In re Ira Haupt & Co., 240 F.Supp. 10 (S.D.N.Y.1965), affd. 379 F.2d 884 (CA2 1967); 6A Collier on Bankruptcy P12.05(5) (14th ed. 1972).

Since appellants had no protectible interest at stake under the notice and creditors' meeting sections, they cannot now challenge any alleged contravention of the statutes. As the Supreme Court recently stated in a different context in Warth v. Seldin, 422...

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