Source: https://law.justia.com/cases/federal/appellate-courts/F2/536/862/139512/
Timestamp: 2019-06-15 22:29:29
Document Index: 613534081

Matched Legal Cases: ['§ 4607', '§ 4608', '§ 21', '§ 21', '§ 21', '§ 5000', '§ 4801', '§ 4607', '§ 21', '§ 21', '§ 42', '§ 21']

In Re Crateo, Inc., Bankrupt.crateo, Inc., Appellant, v. Intermark, Inc., et al., Appellees, 536 F.2d 862 (9th Cir. 1976) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Ninth Circuit › 1976 › In Re Crateo, Inc., Bankrupt.crateo, Inc., Appellant, v. Intermark, Inc., et al., Appellees
In Re Crateo, Inc., Bankrupt.crateo, Inc., Appellant, v. Intermark, Inc., et al., Appellees, 536 F.2d 862 (9th Cir. 1976)
U.S. Court of Appeals for the Ninth Circuit - 536 F.2d 862 (9th Cir. 1976)
May 27, 1976. Rehearing Denied June 28, 1976
In the summer of 1970, Crateo elected to wind up its affairs and voluntarily dissolve. On August 31, 1970, it filed a petition for judicial supervision of the winding up process with the Superior Court of the State of California for San Diego County. See California Corporations Code § 4607. On that same day, the Superior Court ordered that notice of the dissolution proceeding be published and that all known creditors of Crateo be informed of the petition. In addition, the Superior Court ordered all creditor actions against Crateo enjoined and required all claims against Crateo to be presented in the dissolution proceedings. See California Corporations Code §§ 4608, 4616. Shortly thereafter, a creditors' petition was filed in the District Court alleging that Crateo had committed the fifth act of bankruptcy as defined by Section 3(a) (5) of the Bankruptcy Act, 11 U.S.C. § 21(a) (5).
The petitioning creditors alleged that Crateo's petition in the state court for judicial supervision of its dissolution amounted to the fifth act of bankruptcy, 11 U.S.C. § 21(a) (5). That section provides, in pertinent part, that:
California law governing the dissolution of corporations creates a significant change in the status of the corporation and its directors. We agree with appellant's creditors and the District Court that the net effect of this change means that Crateo's actions in the state court resulted in the "appointment of a receiver or trustee" within the meaning of 11 U.S.C. § 21(a) (5).
In winding up the corporation's affairs, the first duty of the board of directors is to satisfy the corporation's debts and liabilities. Cal.Corp.Code § 5000. In satisfying these obligations, the directors' powers under Cal.Corp.Code § 4801 are circumscribed by the overall supervisory power of the Superior Court under Cal.Corp.Code § 4607. If the directors do not settle the corporation's obligations properly, the court has the duty to vacate the directors' actions and make the appropriate settlement itself. In re Trinity Tractor Co., 3 Cal. App. 3d 428, 440-441, 83 Cal. Rptr. 783, 791-792 (1970).
There was no need for the board of directors to be formally appointed trustees or to formally possess legal title to the corporation's assets. The effect of Crateo's actions in the Superior Court was to require its board of directors, under court supervision, to act as trustees.3 In determining whether a corporate dissolution under state law is the equivalent of the fifth act of bankruptcy, "it is the end result that counts". In re Bonnie Classics, 116 F. Supp. 646, 648 (S.D.N.Y. 1953).4
Not every corporate petition for dissolution under the California Corporations Code will necessarily result in an involuntary bankruptcy. Under11 U.S.C. § 21(a) (5), the creditors must also show that the debtor was " insolvent or unable to pay his debts as they mature". However, if this situation exists, California corporations cannot defeat the operation of the bankruptcy laws by applying for dissolution under California law. In re Watts & Sachs, 190 U.S. 1, 27, 23 S. Ct. 718, 47 L. Ed. 933 (1902). The overly technical approach to the interpretation of 11 U.S.C. § 21(a) (5) urged by Crateo must be rejected.
Under Section 19(a) of the Bankruptcy Act, 11 U.S.C. § 42(a), Crateo was entitled to a jury trial "in respect to the question of (its) insolvency".7 Prior to that trial, the issue of Crateo's insolvency had been referred to the referee in bankruptcy sitting as a special master. The report of the special master was then read to the jury pursuant to Rule 53(e) (3) of the Federal Rules of Civil Procedure. Crateo contends that the procedure followed in this case violated its right to a trial by jury on the question of its insolvency.
At the trial, the findings of the special master were read to the jury. In providing that these findings are "admissible as evidence" and "may be read to the jury", Rule 53(e) (3) does not require the special master to personally read the findings to the jury. Consequently, contrary to appellant's position, the special master did not have to be made available for cross examination on the procedures used to reach the findings presented to the jury.
The procedures employed in the trial would not impermissibly interfere with the right to trial by jury guaranteed by the Seventh Amendment. Ex parte Peterson, 253 U.S. 300, 40 S. Ct. 543, 64 L. Ed. 919 (1920); Burgess v. Williams, 302 F.2d 91 (4th Cir. 1962). Crateo's statutory right to a jury trial under the Bankruptcy Act gives it no greater rights than those available in civil proceedings governed by the Seventh Amendment. Diamond Door Co. v. Lane-Stanton Lumber Co., 505 F.2d 1199 (9th Cir. 1974). Under all the circumstances of this case, we conclude that Crateo received a fair and proper trial on the question of its insolvency.
The petitioning creditors had alleged and were required to prove that Crateo was "unable to pay (its) debts as they mature" when it petitioned for a judicially supervised dissolution in state court. 11 U.S.C. § 21(a) (5). This is the "equity" definition of insolvency. The trial judge's instruction to the jury followed the language of the statute.10 Crateo objected to this instruction, claiming that the word "debts" is in the plural and therefore the creditor must show the debtor's inability to pay "substantially all" of its debts and not just the debtor's inability to pay "one or two or three" debts.
In this case, however, the District Court found that it was inappropriate to either grant or entertain the Rule 60(b) motion. This was only a procedural ruling and not a final determination of the merits of the Rule 60(b) motion. Such an order is not appealable. Crateo's "appeal" from the District Court's order must therefore be considered as a motion for remand of the case for consideration of the Rule 60(b) motion. Weiss v. Hunna, 312 F.2d 711, 713 (2d Cir. 1963) cert. denied, 374 U.S. 753, 83 S. Ct. 1920, 10 L. Ed. 2d 1073 (1963); Canadian Ingersoll-Rand Co. v. Peterson Products,supra, 350 F.2d at 27 n. 16. We decline to order such a remand.
The basis of Crateo's motion was an attack upon the validity of a judgment from the United States District Court for the Southern District of Texas in favor of the Southern National Bank of Houston and against Crateo. See Southern National Bank of Houston v. Tri Financial Corporation, 317 F. Supp. 1173 (S.D. Tex. 1970), affirmed sub nom., Southern National Bank of Houston v. Crateo, Inc., 458 F.2d 688 (5th Cir. 1972). This judgment was introduced as evidence tending to prove that Crateo was unable to pay its debts as they matured and comprised a large proportion of Crateo's unpaid debts. In its Rule 60(b) motion, Crateo claimed that the Texas judgment was obtained by fraud and should not have been considered at Crateo's bankruptcy trial.
Blair & Co., Inc. v. Foley, 471 F.2d 178 (2d Cir. 1972), vacated and remanded for consideration of mootness, 414 U.S. 212, 94 S. Ct. 405, 38 L. Ed. 2d 422 (1973), is not to the contrary. That case involved a private arrangement between a brokerage firm and the New York Stock Exchange for the appointment of a liquidating agent for the firm. No court was involved in the liquidation process nor did the winding up process force creditors to forego their normal legal remedies. In light of the different factual situation herein, we need not comment further on the Blair case