Court Opinion

ID: 9339390
Source: CourtListenerOpinion
Date Created: 2022-12-16 17:46:54.300708+00
Date Added: 2024-06-11T17:14:59.917690
License: Public Domain

BRYAN, Senior Circuit Judge,
dissenting:
I would affirm on the discriminating opinion of the District Judge, In Re: Golden Enterprises, Bankrupt, No. ST-B-73-6 (November 16, 1976).
Despite the recital of other reasons, the majority decision actually turns on the single axis: that appellee, the second mortgagee, failed to renew “during bankruptcy” a request made during the arrangement phase for a sequestration of rents for his benefit. The term “bankruptcy” is used in its technical reference to the stage of the case after adjudication of bankruptcy upon failure of the arrangement plan.
I.
This point was initially made at trial by the appellants, but overruled by the District Judge for the reason that the requirement of a second request would have been the exaction of a procedure he deemed futile, that is, useless as unnecessary “since that was already being done”, i. e., it had been sought and ordered by the Bankruptcy Judge. But the majority terms this statement erroneous because, although this had occurred in the arrangement proceeding, the request had not been renewed after the adjudication, hence not “during bankruptcy”. The facts, I think, sustain the District Judge and reveal the majority as sacrificing substance to form, for in regard to the request and order, there was no such decisive break in the two stages of the case as to warrant this sacrifice.
On May 4, 1973, the petition for an arrangement was filed by Golden Enterprises and on June 27, 1973 Joe N. Cagle was appointed “standby trustee”, that is, to serve as trustee in bankruptcy in the event of the failure of the arrangement plan, as authorized by the statute, 11 U.S.C. § 738. Thereafter, April 17, 1974, the Debtor’s attorney moved the Bankruptcy Judge “for an Order appointing a named individual to function as agent in collecting rental income of Golden Enterprises, Inc. and apply*1212ing the funds to those debts approved for payment by this Court”. The next day the order was entered naming Simon Joseph Golden as agent “to collect rents and to apply the proceeds under the supervision of the Court”. Among the applications so ordered was one to the “5. Interest and principal on secondary mortgages” which, of course, included appellee Butner’s mortgage. Further, the agent was directed not only to file monthly reports to the Court, but also to the “second mortgage holders”, of his receipts, expenditures and “accumulations”.
No modification of this order occurred before the adjudication of bankruptcy which was made 10 months later, February 14, 1975. Therein Joe N. Cagle was appointed trustee of the property of the Debt- or. As heretofore noted, he had been named earlier to occupy this position and did so throughout the filing of the request for an agent to collect rents and the use of them towards payment of the principal and interest of the second mortgage. Highly significant, moreover, is that the trustee after adjudication was directed, inter alia, “to collect and receive all rents . and to hold and retain all moneys thus received to the end that the same may be applied under this or different orders of this Court . . . This included, of course, the sequestration order — as a “different” order — for it emanated from the same court in a component of the same suit.
True, Bankruptcy Rule 201 provides that the appointment of a receiver (agent here) shall be terminated when the trustee qualifies. However, this termination does not wipe out the request for the sequestration; nor does it annul the order for the application of the rents to the second mortgage. Only the collector is changed, but that change would not alter the rights of a creditor which were fixed by an order during the arrangement stage. The agent would simply be supplanted by the trustee. The first order has equal standing, by virtue of 11 U.S.C. § 752, of any order entered in a voluntary bankruptcy case after adjudication, and a petition for an arrangement is the equivalent of a petition for voluntary bankruptcy. 11 U.S.C. §§ 752 and 778(a)(2). Thus this order remained intact and no reassertion of it was demandable.
With deference I suggest that the majority misconceives the operation of the arrangement provisions, contending that what is ordered during that period is vacated or nullified by the subsequent adjudication. As just mentioned this is gainsaid by the statute, § 752, declaring that an order passed therein before adjudication, has the same standing as one passed in a voluntary bankruptcy after adjudication. In truth, there is but a single proceeding. The arrangement phase is simply a prefatory consideration in relation to bankruptcy. The same petition at once serves both; the trustee for both is chosen at the commencement of the arrangement; and both are simultaneously considered by the Bankruptcy Judge. Hence orders are frequently common to both.
II.
Appellee Butner is chided in the majority opinion for not taking “formal action” to obtain foreclosure of his mortgage by an adversary proceeding under Bankruptcy Rule 701. Likewise, he is taken to task for not filing an opposing answer to the trustee’s application to sell the property. Both of these reprovals are extinguished by the fact that, as the majority earlier noted, Butner had already asked for abandonment of the property to him subject to prior mortgages. It was in this context that he stated he would waive any claim, as the majority would point up; manifestly, his business judgment taught that the abandonment of the property to him was more advantageous than the benefits to be derived from the rentals. Instead of ordering abandonment, the trustee obtained authorization to sell the property at public auction, which he did. Surely, again, further action by Butner would have been futile.
III.
Finally, the proposed opinion notices the District Judge’s statement that “the Court *1213finds no difficulty in determining that equity required that rents collected under the circumstances of this case should go to the secured lienholders rather than to unsecured creditors”. Rather than to dispose of the considerations in the mind of the District Judge by simply referring to his failure to articulate these equities, I would remand for a hearing on them. Particularly in respect to equities, I would not charge Butner with any success he may have had with the property after he had bought it and it was out of the case.
For the foregoing reasons I cannot join in the majority opinion.