United Properties Incorporated, and Hans Bodsgard v. Emporium Department Stores, Inc., Debtor, and Its Creditors Committee

part exec- remained the lease which executory is utory. contract such When subsequent action, as upon in a sued here, subject de- to all contract it including nonperformance

fenses, equal- It seems of consideration. failure ly equitable remedies such evident and restitution should as rescission argue

applied appropriate. To where embodying judgment, the consent agreement executory in the nature lease, bars an amendment entirely any to be defense would seem upon an action based inconsistent with judgment. such applied these basic The district court principles it which to the case before

was, effect, no less than no more and an action on contract. We conclude resulting judgment and the the decision below favor of Wonderland should . affirmed. Affirmed. UNITED PROPERTIES INCORPORAT- ED, Bodsgard, Appellants, and Hans

v. STORES, EMPORIUM DEPARTMENT INC., Debtor, and Its Creditors Committee, Appellees.

No. 18610. Appeals United States Court of Eighth Circuit. June Rehearing 5, 1967. July Denied Simon, Maun, Hazel, Jerome B. Green, Hayes, Paul, Aretz, Simon & St. Minn., appellant for and filed brief with

Joseph Maun, Paul, A. Minn. St. Marcy Finke, Finke, Jacobs & Hirsch, City, appellee New York for Dept. Emporium Stores, Douglass, Donlin, Paul, Minn., Bell & St. with were him on the brief. Schwartz, Siegel,

Leonard Sommers Schwartz, Brooklyn, Y., appel- & N. lee, Official Creditors Committee and filed brief. VOGEL, Judge,

Before Chief Judges. HEANEY, GIBSON and Circuit HEANEY, Judge. Circuit Paul, Emporium Inc., of St. subsidiary Properties, of United Inc. (hereinafter United), referred to as large operator owner and of a downtown department store branch and two leased pension payments Minnesota, making Paul, sub- Debtor of sold stores St. operating the Credi- stantially the accountant assets set all its $296,000. The Debtor September 1963.1 tors Committee at the Debtor Paul, having Concurrently, deposited reasonable Emporium securities of St. Dry partial $75,000 Inc., changed as to Paul of with United its name value St. Dry thereafter, security performance the and, of Goods, Inc., Paul for its St. agreement. Goods, Inc., liquidated of its all and to United. transferred assets were agree- indemnity pledge and an Under day sale, of On the the en- Debtor the Debtor ment entered into between agree- defend, year twenty-five agreed United, tered into lease a to and Debtor indemnify ment for the downtown store with Unit- if it hold United harmless and acting ed as the lessor. The make Debtor was forced to defaulted and United agreed payments pension payments to make annual of em- the retired to against year.2 $450,000 per ployees. about The Debtor was made If a claim assignment accepted also by pensioner, an leases was to the Debtor United given reasonable branch stores. and a notice thereof opportunity dispute, or settle defend to Debtor, in of a consideration any pay- If made said claim. United $400,000 purchase price, reduction in the any expenses in con- incurred or ments agreed pay pensions to continue to to Emporium not did nection therewith and employees number of United retired days, within fifteen United reimburse (the long Paul, Emporium Inc.) as of St. liquidate a suf- to authorized United was ranging they pensions as lived. The $75,- the collateral ficient amount per from to month were $18.00 $150.00 the amount for 000 to reimburse United computed previously adopt- aon formula any payment.3 by such ed to the United. estimated cost that, offer, ly on if the em- agreement such 1. to Pursuant a settlement so— ployee em- signed February 3, 1964, pur- in service of the remains on total year, throughout ployer he has price $4,775,000. chase fixed at right addi- as to the bonus earned provided 2. The lease a minimum rental of services, compensation for his tional $150,000 per year, plus additional rents profits and, has net if the business upon percentage gross based sales. employer year, him such owes lease, Debtor Under terms of the compensation contrac- as a additional rents, obligated pay ground was also accepted obligation offer. from tual year aggregating $21,750 per real es- Am.Jur., Servant, 71, § Master See amounting $140,000 tate taxes about pp. 501-502.” per year. v. Amusement Co. also Minnesota See 1962); (8th Supreme Larkin, 3. F.2d 142 Cir. While the Minnesota 299 Court has Co., question, appear, Life 171 Berkshire Ins. decided the Cantor v. it would (1960); 405, decisions, N.E.2d 518 a number Ohio St. 171 of its recent as Michigan juris- Alkali Co. et well recent et al. as decisions from Psutka al., v. other (1936); dictions, 318, employees 264 385 Mich. N.W. had 274 who retired Co., agreement Rudolph 48 Ohio as of the date of this were en- Wilson v. Wurlitzer (1934); titled, right, App. 450, 441 Scho as a N.E. matter of to receive 194 Cooperative pensions they due; Mercantile their Zion’s as v. came field 342, could, 281, they Inst., in the P.2d 96 A.L. event 39 were not 85 Utah paid, against (1934); maintain L.Rev. 656 an action for R. 45 Iowa them 1083 (1956); (1960); United. Gorr 23 v. Foods Cor- 56 Colum.L.Rev. 251 Consolidated poration, (1955); 375, 53 Harv.L.Rev. 253 Minn. 96 91 N.W.2d 772 U.Chi.L.Rev. (1958); (1940); Hartung Billmeier, 420 v. 34 Mich.L.Rev. 243 Minn. 1375-1384 148, CONTRACTS, (1954). (1936); 66 N.W.2d ON 784 WILLISTON Judge 1957). Johnsen, (3d Court, ed. obligation § of this in a con 130B curring opinion, pensioners Wasie, Judd v. F. United’s (8th 1954), 833, page 2d 826 Debtor for a consid- Cir. was assumed United, however, $400,000. stated: eration of desiring “ * * * obliga- protect An of the more itself from the examination show, think, making payments pension will recent decisions I tion of general Debtor, present en- sound- view is—and of a default event agreed pay (de- they Upon applica- The Debtor further debts matured. ferred) compensation $15,000 year per tion of three unsecured creditors of the years Hunsinger, United, for ten to Russell the Debtor and the New York Dis- manager president general trict Court Southern District seller, proceedings who duties assumed similar with ordered that with re- Debtor, upon . spect (Emporium) of his em- termination to the Debtor ployment. Hunsinger’s In the event of transferred Minnesota. Inc., In re Kerr’s death, payments F.Supp. (S.D.N.Y.1966), his were to be made to employment (2d 1966). estate. He terminated his aff’d F.2d Cir. 1, February and thus became May 17, 1966, On its Debtor filed eligible year $15,000 per be- to receive proposed Arrangement and, Plan of ginning January United 22, 1966, June the Referee in Bank- guaranteed obligation the Debtor’s ruptcy determined that the Plan had Hunsinger, pledged and the Debtor secu- accepted by majority been a of the credi- having $75,000 to rities a value of about tors.7 guaran- security partial as for United Arrangement provided The Plan of teeing payment.4 the the that claims of unsecured creditors taking possession, February 12, 1966, liqui- Some time of dated, after the to be were $1,499,435 parent discharged Debtor loaned to its satisfied and in full company, according options: Kerr’s Inc.5 This of transaction two one depleted working capital the Debtor’s (1) By payment the each of of 100% directly and led to its financial difficul- claim, payable upon in cash con- 50% ties.6 firmation and of balance the 50% paid equal in five annual installments apparently inadequate, The loan was each, pay- of the first installment 10% however, to the solution of the financial January 15, 1968, able fif- and on the problems parent, February of the and on day January year teenth of in each there- 14, 1966,. subsidiaries, Kerr’s Inc. and its paid, after until or including Debtor, petition filed in (2) By payment of of United States District Court of the 70% respective seeking claims in full and Southern settlement District of New York discharge claims, payable Chapter reorganization. of the in cash XI Each cor- upon poration alleged confirmation. pay it was its unable Commenting loan, 6. security agreements on tered the Referee in into the out- Bankruptcy, page hearing opinion. 112 of lined in the text of the United transcript August 23, 1966, rights pension- of stated: thus has the same as the reject “I have taken into man- account the ers to the confirmation of the Plan agement corporation Arrangement. of this in of consid- ering feasibility. Management appeared February 12, 1966, 4. The financial state- capable. testimony to be There that prepared by ment the accountant for the management this will continue. It has Creditors Committee established a liabil- judgment made some errors of past, in the ity $169,000 portion for the unsecured the worst of which was the loan pension Hunsinger of the claims. See parent Kerr’s, company, to the Appendix A. Emporium $1,500,000, funds of the Kerr’s, Incorporated, loan, 5. is a Delaware cor- or thereabouts. Without this poration company licensed to do business in New this would not been in have operates large York. It two retail stores financial trouble.” in Oklahoma and owns all of stock 7. Ar- Referee amended Plan of stores, including four other retail rangement requirement to delete a Debtor, Illinois, are in which located Kan- approval contingent upon its ac- sas and Minnesota. Kerr acted as the ceptance and confirmation of the Plan policy organiza- director for the entire Arrangement parent corpora- tion, working from a small office of four tion and the other subsidiaries. Street, York, rooms at 11 42nd West New employees New York. Its staff of five money corpora- received all the of each tion and distributed the same. hearing, two-day Referee, after a proposed in the made No mention was theAt conclusion the Plan. Arrangement confirmed of the Debtor’s Plan hearing, lease, pension of the he stated: obligation under Hunsinger agreement.8 agreement, or the grave its doubts as to “The court has ruling Properties has that United hearing set A confirmation plan object appear to the status to subsequently 23, 1966, but was June herein, arrangement file July 18, postponed The Cred until amended. which has since been opening Committee, at the itors July hearing, Debt- 18th moved objector to court has allowed “The bankrupt adjudicated on the or be ground all con- proceed in the interest it to make had failed delay cerned, this in further because deposit. required creditor Another irrepairable proceeding be to would ground upon joined motion (sic) damage in this of all concerned had sus DebtOr-in-Possession matter.” during operating the month losses tained (1) the Plan He hold that went amounting approximately June interest of best was feasible and Bankruptcy $154,000. The Referee creditors, (2) af- the firmed, the leases were postponed the the motions and denied re- (3) the Debtor would August heariñg until confirmation pension- quired payments to the to make 1966.9 Hunsinger they due. as came ers and August hearing, Prior to the 23rd the petition A for review of the Referee’s appellants objections supple- filed and confirming amended, Plan, order the as objections Arrange- mental to the Plan of was filed on behalf of Hans United and grounds ment on the it that was neither Bosgard,10 hearing and a held was be- feasible nor in the best interest of the Lord, Judge fore the Honorable Miles W. creditors. The Debtor answered the that Court, September 19, of the District on appellants were not creditors and were 1966, appellants’ at which stand- time the provable claim, therefore, without and, ing again questioned by was Debtor the parties not object interested entitled to and the Creditors Committee. The court to the confirmation of the Plan. The ruling standing on issue deferred the and ruling Referee his reserved on the stand- permitted ing appellants present evi- the permitted testimony issue and to be questions presented of the dence the whether as to whether the Plan was Arrangement and Plan of was feasible feasible and in the best of interest the in the best interest of creditors. creditors. assignment $700,000 upon Arrangement, 8. of Accounts an Under the Plan of all of capital Debtor, di- amount whenever the issued Receivable this stock of the blank, by de- Referee endorsed in the Referee. The and the rected undated res- impractical ignations to boi;-, of the clared that: it was officers and directors required money corporation, it of the was row the before were to be delivered by unnecessary pay attorney interest. He the Debtor thus to the and for the required security obtain a letter Creditors Committee that the Debtor as and re- upon payment Discount turned to the Debtor of intent the Commercial promissory Corporation. not all Final of the distribution notes of the Debtor. 21, until December made to the creditors postponed hearing July 18, 9. At the 1966. 1966, pointed $700,000 it was out that pensioners, required Bodsgard, $1,080,00 deposit, the one of the 10. Hans under the by agreement Arrangement, between United Plan of had covered the not been made. they Debtor, had contended he The Creditors the Committee stated that and against requirement undisputed Debtor claim the had waived the $700,000 cepted deposited monthly pension amount in the had for a cash and ac- per the rest of a commitment from month $150.00 the Commer- Corporation cial Discount his life. advance September 19, 1966, September 20, 1966, On District continued. On Findings and petition Court entered its of Fact Debtor filed a with the Referee affirming requesting United, Conclusions of and Order Law claims of Arrangement. they court lease, pensions Plan of related to the and Hunsinger, expunged stated: and that respect same action be taken with to the (1) Findings Fact The Referee’s Bodsgard pension 20, claim. October On by testimony supported ex- are 1966, expung- issued an order Referee hearings hibits offered in evidence ing pension Hunsinger, and the 23, July 18, August 22, August held Bodsgard appellants claims.11 The filed petition for review of the Referee’s or- (2) concerning Additional evidence der. The Court District entered its order position, subsequent to the Debtor’s affirming Referee’s order Novem- arrangement, confirmation not did appeal ber 1966. No further substantially alter or affect Referee’s taken. Findings Fact, impeach nor affect or major questions presented Two are reasonableness of the conclusions appeal: (1) this Court on Is the order the Referee drawn therefrom. confirming Arrangement Plan of (3) While neither nor Referee subject by the Debtor to review this guarantee court could commer- future (2) subject review, Court? If is the Debtor, cial success evidence clearly ought order so it erroneous that gives is a reasonable indication that there be set aside this Court? present probability of success. (1) confirming The order the Plan of (1) The court “the find- concluded Arrangement subject to review this ings clearly of fact of are the Referee Court. erroneous the conclusions Referee therefrom the Plan of Ar- that The Referee and the lower rangement is feasible and in the in- best decided, reluctantly, court albeit that the reasonable;” terests of the creditors is appellants standing object had the to to (2) finding and “the of the that Referee Arrange confirmation of the Plan of Arrangement adequately the Plan of cross-appeal ment. While no was taken provided pension- dealt and with for the by appellees, from this decision the we ers, including Hunsinger, rea- Russell will, nevertheless, standing consider the clearly and not sonable erroneous.” being properly issue as us.12 before 4, 1966, On October Hans United and Bodsgard appealed outset, Dis- the order of At the the it be noted must Thereafter, trict Court to this Court. obligation the had that to Referee appellees the filed a motion to dismiss study make careful of the Plan of Ar appeal. this rangement, to make and an informed and independent judgment

Meanwhile, proceedings leading the as to whether to Arrangement finalization of the Plan Plan was in of creditors the best interest parties stipulated 11. appeal The that claims the lower that were the asserted relating agreement enlarge to the lease could be that do not or extend its court expunged waiving rights. without the creditors v. Standard Accident Ins. Co. any right participate any 1942); Roberts, (8th to dis- future 132 F.2d 794 Cir. adjudi- (1958). tribution should Debtor the Barron Holtzoff 3A & 1572 § bankrupt. case, appellees, present cated a Thus in the the having standing before raised the issue obligation Court, the While decisions the District have the Referee and appellee cross-appeal right of an to Per- are to the issue here. file raise rare, enlarge appear mitting the better would do view to be them to so does not rights. appellee any grounds any previously upon that an can assert held their

(J1 Surety organization provided Co. National feasible.13 the lease to and was 426, 436, organ- Coriell,14 corporation, assigned 53 289 S.Ct. to the U.S. new v. (1933); reject- 678, Plan, Los v. it 77 L.Ed. 1300 Case under the unless was ized Angeles Co., by 308 U.S. The Plan con- Products Debtor. Lumber ed ; (1939) 114, 1, appel- 106, protest L.Ed. from 110 S.Ct. firmed without lant, Realty Congress Co., Sophian appeal F.2d from order v. did not who 1938). responsibility appellant (8th confirming This it. Cir. When though objections Arrangement no were Plan of existed even learned provided assignment by simple the creditors. for a of the filed move out and that the Debtor could lease appellants credi- The contend that as any fit, it saw it moved to vacate time by adversely materially affected tors and reorganization approving the order Arrangement, they had Plan modify ap- Plan, and to the time for right appear at the confirmation hear- having expired. peal object being ing con- and Plan by Referee, appeal and to firmed Circuit, resolving the The Second an adverse in this matter. decision Mohonk, issues in held that it was within grant or court’s discretion to the lower deny appellees appel- concede that the appellant’s it motion and right appear had a the con- lants at It no abuse found of that discretion. object hearing Plan firmation and to the page on to state at 290 of 111 F.2d: went argue Arrangement, of executory but that once lease, Hun- contracts—the “Appellant urges further as a singer agreement agree- pension and the rejected, not landlord lease was whose ment—were affirmed Debtor file it was unable to a claim and hence part that such affirmation amade right had no to be heard the con- * * * appel- Arrangement, Plan hearing. firmation arewe longer thus lants were no creditors right appellant satisfied had right object no had further right be heard reorganization to share in the Arrangement appeal from Plan of or to may plan. A landlord confirming the decision the Plan. provable abe creditor with a claim rejected, until but under his lease is Realty appellees urge Mohonk Chapter rejected X his can be lease Inc., Corporation Stores, Wise v. Shoe plan terms itself [section (2d 1940), re 111 F.2d 287 Cir. In 77B, b(6), sub. 11 U.S.C.A. sub. § Greenpoint Co., Metallic Bed F.2d b(6); Chap. X, 216(4), 11 U.S.C.A. § (2d 1940), supporting Cir. this 616(4)], and at such time becomes he § view. provable a with a claim. creditor Sec- go- do not either We consider case as 77B, 207, b, tion sub. 11 U.S.C.A. sub. § ing point to the at issue. b; Chap. X, 202, 11 U.S.C.A. § § reorganization Mohonk, plan A is his In of landlord entitled to insist that fully 207, rejected 77B, or as- 11 lease be either under Section U.S.C.A. § ap- approved plan, by the sumed under and he must was District the Court. adopted reorganization pear appellant’s in court at the nor the was neither lease rejected by hearing before, or- plan or in confirmation the Debtor. of re- pro- Bankruptcy Plan had a reasonable 13. Section mine whether the 361 of the Act plan accepted of that has chance success. vides if a been xoriting iy all creditors there- affected Supreme Court, discussing by, approved the it if is 14. The must be court the Bankrupt- arrangement responsibility ac- of a Referee satisfied that the and page ceptance good cy, 77(b), of V. are in faith not under at 436 289 § and have means, page procured by promises S., S.Ct., stated: acts of been or “ * * * Every important Bankruptcy by determi- forbidden the Act. See receivership pro- by Bankruptcy, (14th on ed. the court in nation ceedings § Colliers 1966). informed, event, inde- In calls for an such the Referee would ” * * * judgment. responsibility pendent relieved deter- be of his to adequate protection executory der to for assure valid contract with the debt- * * * Having petition or his interests. failed when its filed. was protest, appellant to is bound as a ****** confirming ‘creditor’ the order “ * * * may arrangement If an ” * * * plan. contract, tacitly reject executory an arrangement clearly authority Mohonk is for the we think the debtor’s did right thereupon landlord, holder, of a another so. In or Ratner event executory having participate and, an to contract in a became a creditor knowledge full authority facts, hearing. ample confirmation It is not had he proposition for the executory file his claim that the holder of an time to expiration as such before contract is limited at of the bar order on Janu- such hearing right ary to insist 4th. But are to that the ex- we constrained be- ecutory accepted rejected contract be or lieve that statute does not author- executory Debtor, authority rejection nor is it ize tacit an * * * that, accepted, Consequently, view if no contract. rejection holder of the executory right prior ques- contract has no had occurred to Janu- ability ary tion perform. the Debtor to was not a Ratner creditor applied. whom bar order Greenpoint, supra, In appellant was employ arrange- in the Debtor under a writ- “Before confirmation providing ten brought contract fix for a motion term of he his serv- ment stipulated ice weekly at a rate. On his contract with De- his status under 13, 1939, timely, cember peti- the Debtor filed a motion was debtor. This arrangement tion for an Chapter under should have ordered referee provided XI rejected which for the and should have transfer of contract to be assets pay corporation proving to a new claim who was to fixed a time rejection. all arising unsecured Section creditors from such their 20% * * * claims. petition 369(3). Neither As Ratner did the Debtor’s nor proposed arrangement appeal the ar- from confirmation mentioned the employees’ contract, rangement employee attack that or- cannot he happens der; informed of an these there be facts. but since The em- ployee was deposit notified still within court’s last excess date for filing may why January 4, control, claims he no reason we see but prove filed no claim. dam- not still be allowed ages rejection resulting his Thereafter, January 16th, em- payment of 20 receive contract and ployee asking filed a motion for an ad- cent, per de- out of thereof the excess judication that his contract was in full ” * * * posit. effect, force and ar- survived the rangement; or, alternative, as an authority prop- Greenpoint for the stayed pending confirmation executory a deter- must osition contract mination of the status of affirmed, his contract expressly and that in the and the claims reject- thereunder. affirmation, The Referee it is absence of such employee’s denied the motion. The em- of It that the holder also indicates ed. ployee appealed rights and the District Court such a assert his contract should Meanwhile, affirmed. the hearing Plan of Ar- the at before the confirmation rangement had been confirmed and the Referee, appeal from the confirma- and employeesought no review of dissatisfied; the order of and fail- tion order if that confirmation. ing special so, the to do circum- absent Greenpoint, cannot as- stances found in discussing appellant’s motion, In the rights subsequent motion. sert his in a Greenpoint Court, pages 883-884, the said: however, Greénpoint Mohonk, Like “ * * * question attempt discussion must start of the does not to settle upon right premise that Ratner of such a contract had a of the holder standing they, in their Arrangement or United that which object Plan to a to right protest un- Plan place, a had no his contract. affirms and credi- service which merchandise der speci Chapter not XI does While minimum of a receive tors would 50% object may may fy and who who empty payments, shell and leave cash Arrange Plan of of a confirmation contracts, in- would be fulfill their judgment the holder ment, that it our is spirit contrary equitable and to the executory has been contract which of an Bankruptcy Chapter Act. XI of clearly per by fully performed him appellees adversely further contend materially may or son who be may rights appellants Plan, that whatever by of a the confirmation affected object confirmation of effectively had to to the have right thus has a and Arrangement ap lost to the Plan of were thereto, appeal opposition and to in heard by appeal pellants from their failure to matter. from an decision adverse expunging order Referee’s point are of view this reasons part: claims. The order stated in by his Davis in Professor well stated 894, 892, “1. That claims number on Administrative Law: treatise under the have been dealt with permitting in favor “The reasons arrangement by plan of as confirmed by challenge governmental action August 23, 1966, the Court adversely one who is in fact affected arrangement judi- plan said is res by very powerful. The that action are as to claims. That under the cata those strongest principle of reason is the regarded plan, all of as those claims are elementary justice that one who is pension Court has al- claims illegal by hurt have fact action should ready Depart- Emporium ordered remedy. The second reason is Stores, pen- pay ment Inc. is to artificiality complexity they sion claims became due. disappear courts law would if 892, 894 “2. That claims numbered simple would one follow the idea that A and 895 as listed on Exhibit attached challenge; may who is in fact hurt hereby expunged.” ordered hereto are large litigation amount of over merely had order reaffirmed what unnecessary This complexities of law of ” * * * previously Referee’s standing been decided is wasteful. August 23,1966, from which Davis, order of Administrative Law Treatise § already appealed. properly appellants (1st 1958). had 22.02 ed. (8th Maclaren, 122 F.2d Kelso v. See addressing While Professor Davis was Triangle 1941); Co. v. Electric Cir. problem judicial to the himself review 1930); (8th In Foutch, Cir. 40 F.2d 353 decisions, of Administrative this reason- 1915); (3d Pechin, Cir. 227 F. 853 re ing applied validity can as well be with 1914); (3d Chotiner, Cir. 218 F. 813 re In proceeding. the instant See also Bantam (14th Bankruptcy ed. 24.39 § 2 Collier Sullivan, 58, Books v. 372 U.S. 83 S.Ct. removing 1966). the effect of It had 631, (1963); Cramp 9 L.Ed.2d 584 v. register from claims contested Instruction, Board Public 368 U.S. made, distribution was which 278, 275, (1961) ; 82 S.Ct. 7 L.Ed.2d 285 already appeal way no affected the but City Chicago Atchison, Topeka v. & pending. Ry. Co., 77, Fe Santa 357 U.S. 78 S.Ct. con- (2) (1958). order Was the L.Ed.2d 1174 Referee clearly erroneous firming Plan so clearly Such is the case with re ought this aside to be set it relating spect executory to the contracts ? Court Hunsinger. pensioners They to the question of performed required now to the come had We the services in pensions of the Referee compen decision whether earn their or deferred Arrange Bankruptcy, of They believing Plan that sation. that had retired best interest payments feasible and in the these made. To hold ment would be 64 creditors, clearly objecting approved of 11 erroneous.15 unless be 766(2). Judge Blackmun, could it was not U.S.C.A. creditors show §

writing Court, O’Rieley v. for this in feasible. Corporation, ****** 297 F.2d Endicott-Johnson 1, (8th 1961), 6 Cir. stated the test to be large majority of the “Even if applied determining a deci- whether approved plan, had creditors clearly sion was erroneous: no would of avail to it. In sustain “ * * * Cir., Barclay Corporation re Park [2 although whether, there 595], supra; 90 F.2d First National supporting reviewing evidence, is ‘the Flershem, Bank of Cincinnati 290 v. court on the entire is evidence left with 465, 504, 298, 54 78 S.Ct. L.Ed. U.S. a definite and firm conviction that a Day Meyer, 391; 90 In re & A.L.R. committed,’ mistake has been * * *» supra Cir., Murray Young, Inc., & [2 657], page vitally 93 It was F.2d 659. Commissioner of See Internal Revenue important the court should be Duberstein, 278, 291, v. 363 U.S. 80 S.Ct. accurately by fully re- and informed 1190, (1960); 4 L.Ed.2d 1218 United liable evidence as to the value of Gypsum Co., States v. United States 333 dealing, property with which it was 364, 395, 525, U.S. 68 92 S.Ct. L.Ed. 746 obliged entirely rely and not on ex- Magidson (1948); Duggan, 212 v. F.2d pert produced by pro- evidence 748, (8th 1954) ;16 Kasper 752 Cir. v. ponents plan. of Jamieson v. Wat- Baron, 744, (8th 1953); F.2d 207 748 Cir. ters, Cir., 61, 4 91 F.2d 63.” v. Price Pendergrass Co., v. New York Life Ins. Spokane Co., & F.2d Lead 97 Silver 136, 138 (8th 181 1950); F.2d Cir. Kauk 237, (8th 1938). (Emphasis Cir. 245 Anderson, (8th v. 331, 137 F.2d Cir. added.) 1943); Aetna Kepler, Life Ins. Co. v. Judge page 246, At continued: Sanborn (8th 1, 5 1941). 116 F.2d Cir. knowledge acquire “In order to of determining In whether Plan financial, management and busi- Arrangement of feasible, is the bank history concern; ness the ex- of of ruptcy obligation court has an to scru tent, character and condition both of carefully tinize Plan to determine past, pres- liabilities; assets and of whether prospect it offers a reasonable earnings prospective probable ent and Judge and success is workable. San- expenses, plan whether born, Court, commenting of this prospect proposed a reasonable offers responsibility Referee’s matters workable, there must success nature, this stated: competent, concrete, definite, assuming “The court also erred in such reliable evidence which facts if, upon face, plan pro- may its by the court. be ascertained * * *» posed appeared feasible, added.) to be (Emphasis it was concerning posi- ease, pages Judge Additional evidence Sanborn, 16. In this subsequent 752-753, tion of the Debtor to the date stated: question of confirmation was received the Unit- is whether “The immediate petition District findings ed States Court of the are District Court specifically findings court clearly review. The found that of fact erroneous. clearly the additional evidence not did substan- of a court are erroneous trial tially findings or alter affect of fact Rule 52 of the Rules within Federal Referee, Procedure, U.S.C.A., (1) nor the reasonableness when Civil evidence, supported conclusions drawn the Referee substantial the, therefore, not, contrary (2) preponderance therefrom. We are con- clear question upon evidence, (3) cerned with the of whether or based clearly ap- erroneous standard is to be of the law. Aetna erroneous view Life plied Cir., Kepler, decision of the or Referee Co. v. 116 F. Insurance 5; Kasper Baron, Cir., 1, decision the District Court. See 2d v. O’Rieley Corpora- Endicott-Johnson v. F.2d 748.” tion, (8th 1961). 297 F.2d Cir. confirmed can Trailer of Plan is apply this the a narrower proposition, appellants, effect established Plan is fulfilled. Rentals that rule of they however, by the Company, the cite feasibility feasibility fact that In re Ameri In ask us 325 F.2d support —one of the a petitioner’s condition is abused indicate 1044, Commission U.S. [84 that ^[434] L.Ed. v. U. S. discretion, corporate demonstrably the at 1293] page 456, 60 district Realty Co., supra, and unless its determina- and such court financial as to S.Ct. has the 1963), In (10th and re Slumber Cir. tion should be sustained.” (D.C. Bedding Co., F.Supp. 39 land Llewellin, 588, 590 In 86 F.2d re See cases, Md.1953). the In each of these (7th 1936); Car In re Pressed Cir. Steel Arrangement provided that unse of Plan 329, F.Supp. Jersey, Co. of New paid in cash to be creditors were cured (W.D.Penn.1936). to receive not and were on confirmation consideration; pos any it was thus other question is—did Thus the basic Referee to determine for the sible of chance a reasonable the Debtor have date fulfilled Plan had been the the reviewing evidence success? After case, Plan of In this confirmation. entirety, defi in its we are left with payment only all fulfilled when would be Ref firm conviction that nite and made. it had been clearly due under finding feasibility was eree’s we share the Referee’s erroneous. While forty-seven un- two hundred Since maintaining concern for an established creditors, having claims in secured employment to furnished business that option $468,000, accepted the amount of employees, and thousand more than a being paid claim of their over 50% Referee’s that the while we are convinced period years, the Plan not of five would good made in faith decision was five-year fulfilled as to them until the circumstances, un under difficult we are period passed. If also considered the we justification record able find in the Hunsinger pension claims, pe- holding for a reason that the Debtor had longer. riod of fulfillment would be even for Plan able chance success under the Judge Medina, Transvision, In re Arrangement by Referee. confirmed Inc., (2d 1955), page 217 F.2d 243 Cir. financial While statements 246, stated:17 “ 1966, period February 12, * * Debtor feasibility of ar- .* through August 27, 1966, intro- were rangement must be examined awith by appellants, duced into evidence determining whether, view toward Debtor nor Creditors neither procedures the absence of the elaborate provided by Chapter X, prepared projection of fu- Committee and con- sidering corporate earnings debt and struc- than for ture or cash other flow particular petitioner, ture of the there 1966, nor four months of last is a reasonable likelihood de- inventory, independent appraisal of the recovery sired financial will be effected or other assets the Accounts Receivable unduly prejudicing rights without into It thus is clear introduced evidence. * * * any parties. interested com- record does contain the Supreme “The Court has declared petent, evidence en- and reliable concrete that this determination toas the ade- Judge being es- visioned Sanborn quacy Chap- the relief afforded sential an informed decision. XI purview ter is one within the summary composite A of the current discretionary the district court’s exer- Debtor, equity powers, cise of its taken assets liabilities of Securities Bankruptcy Judge Chapter addressing XI Medina ter X himself or problem language. proceeding But whether Act used this when he properly expressed brought principle applicable Chap- here. should he under 66 understanding financial statements as an Debtor’s aid the discussion feasibility shown, forth below of for the dates follows:18 set 27,1966 Aug. Adjusted for 27,1966 12,1966 30,1966 Aug. Feb. Jul. Confirmation

Assets Current Assets 481,000 493,000 158,000 31,000 $ .....................$ $ $ Cash 763,000 $1,049,000 $1,094,000 319,000 ... $ Accounts Receivable $ Net $1,190,000 Inventory .........$1,940,000 $1,240,000 $1,190,000 at Cost 176,000 200,000 204,000 204,000 $ $ Other ....................$ $ .........$3,037,000 $2,981,000 $1,744,000 $2,970,000 Total Liabilities Current Liabilities 886,000 $2,391,000 $2,560,000 Payable..........$1,779,000 $ Accounts 348,000 343,000 305,000 Expenses 468,000 .........$ $ $ $

Accrued 12,000 115,000 162,000 $ $ Other.....................$ $ Legal Accounting & Expenses......... $ &Fees $2,849,000 $1,469,000 .........$2,259,000 $3,018,000

Total Assuming Inventory at Cost: 1 to 1 to 1 1.34 1.04 .98 1.19 to 1

Ratio ....................... to ble, (7) Plani Referee’s decision that conditions were The economic satisfactory. [ Arrangement based was feasible was findings clearly ; These are erroneous: finding (1) his that: ratio (1) The ratio current assets to cur- ! assets to current liabilities was current substantially rent liabilities was less than solvent, one, (2) to the Debtor two ' two to one. (3) capital Debtor’s structure was prepared Financial statements (4) op adequate, business could Creditors Debtor Committee profit, (5) erated at a the cash flow was showed the ratio of current assets cur- (6) management satisfactory, capa- rent liabilities as:

Column 1 Column 2 Assuming

Inventory19 Assuming Inventory Valued on Adjusted Valued at Cost Basis February 12, ........... 1.34 to 1 ....... .64 July 30, 1966 to 1 ................ ........ 1.04 .69 to August 27,1966

(Before Confirmation) ..... to 1 .........98 .66 August

(Adjusted for Confir- mation) ..... 1.19 to 1 .53 to .................. adjusted detailed, figures statement consolidated 18. A more shown Column Appendix necessarily estimates, post- as this decision 4 are is attached for no confirmation statement was received B.

«7 through August 27th, of in- a series to meet its bills was unable Debtor ventory February sales undertaken reduction they due in came necessary to raise funds make assets current its ratio current when deposit necessary to secure confirmation 1.34 1. This ratio was was to liabilities Arrangement. prior during period to That the of the Plan of improved the August to first fact, most salable was the as of merchandise In confirmation. clearly by (assuming fact be sold is indicated the 27th, most ratio the facts the continued, progressively Debtor) re- as that sales to had been the the favorable prices necessary $1,088,000 the lower were move to 1. after to .98 Even duced remaining Payable discharged merchandise off the or shelves Accounts was in by confirmation, of and it into cash. extent the ratio convert The the deferred price necessary accomplish original reductions 1 was less than the 1.19 to when objective liquidating its February the of petition 12, Debtor’s filed on 1966. was gross by drop inventory in shown the is is obvious ratio of It that the current profits passed the months the dependent to current liabilities assets is “inventory continued. reduction sales” inventory.20 ap- the of on value No 31%; gross profits May, Thus the were: praisal made, of it was but even if it be June, 15%; August, 23%; July, higher (cost) conceded that value is 10%. literally By August, realistic, sell- the Debtor was the ratio near was nowhere by ing two to one ratio found Referee.21 meet the at the merchandise cost 23, August confirmation deadline of inventory by The more reduced circumstances, is it $750,000 1966. February Under such than 12th between 1967, validity a total The the Debtor lost evidence. show that of the ratios of period. $486,000 during December current assets to of current liabilities in- is month, dicated, only profitable by a however, when was the exhibits filed in a $1,764,000 subsequent profit bankruptcy $65,000 proceedings on of of sales de- below. scribed was achieved. pe- inventory February 1967, employees (4) during 27, same On The six of $1,170,000, high petition involuntary ranged a the Debtor filed in riod from of $855,000 bankruptcy 29, 1966, asking to a of on October low the Debtor be adjudged 25, bankrupt. Shortly February thereafter, 1967. on operated by the stores the Debtor were C.P.A., by the 20. The selected Creditors petition involuntary A closed. second in Committee, inventory as hav- showed the bankruptcy April 14, filed ing adjusted in Col- value forth set hearing petition A the first was still plan umn based on a estab- 2. This was progress in at the time this decision was establishing Debtor of lished issued. Financial statements of last-in, inventory reserve—based on a Debtor, September, of months undoubtedly, It, under- first-out formula. values the through 1967, 1966, February of were re- inventory. proceeding. in ceived in that evidence sup- only testimony November, 1966, in The ary, 21. The the record ones and Febru- 1967, porting finding Appen- Referee was are hereto as this attached Irving Eisen, Presi- dix C. the statement of Vice Debtor, (1) dent who The and treasurer Debtor’s statement of No- 26, 1966, upon confirmation, vember is the first of testified these re- flecting position cur- Debtor’s ratio of current assets to of the Debtor after It rent two confirmation. liabilities would better than showed: $2,375,000 Eisen based his conclusion on Current Assets .......... one. assumption $2,148,000 that current would Current assets Liabilities........ confirmation, upon $2,000,000 Ratio of Current Assets to be about and current liabilities be in Current Liabilities ......1.1 would 1to neighborhood (2) February 25, $800,000 The at date. statement clearly 1967, shows that in so tes- showed: The record $1,655,000 tifying, take considera- he failed to into Current .......... Assets July $455,000 .......$1,366,000 operating losses of Current tion Liabilities August. result As a of these losses Ratio of Current Assets to which failed to and other Eisen Current Liabilities......1.2 to 1 facts consider, (3) current were excess liabilities financial statements from $1,450,000. September, through February, corporation inventory re- the total assets of the believe that the difficult to upon August maining its 23rd could would total liabilities con- after exceed finding realistically This firmation. can be sustained valued at cost. only inventory (1) the is if: value of the (as remaining per current assets obligation cost, (2) equal to its August 23rd) pro forma statement $750,000 parent due is collecti- cash, $31,000 in one-half consisted of: ble, (3) contingent liability necessary the sum the internal meet disregarded.22 $355,000 sum of Debtor; everyday $204,000 needs of the consisting any justi- Current In absence of “Other Assets” evidence inventory primarily items, fy cost, prepaid none of which the value by generate obligation parent’s of could used the Debtor to with value the the working being capital; dependent an additional and confirmation of Arrangement equity (which $371,000 of in Plan of had not Accounts Receivable (More August 23rd), than of the Accounts Re- been as of and obtained 85% having being $2,741,000 previ- the ceivable of been with no assurance that there ously pledged upon necessary pay to raise funds for Debtor would not be called to liability, deposit contingent finding the confirmation and to the the the of cover $739,000 February solvency by highly specula- losses of from the Referee is * through August.). tive. though $1,674,000 more Even than in (3) The evidence to establish that fails discharged current liabilities or de- were profit. operate the could Debtor at a Arrangement, ferred under the Plan of testimony indicated that the While the Debtor’s current after liabilities con- by operated profit at a business had been $1,469,000, firmation were least and prior owners, it does disclose the ratio of current assets to current profit. extent of that record is also The higher 1, liabilities no was than 1.2 to profit silent as to the extent of for the substantially critically and than less year ending 30, fiscal June 1964. The by 2 to 1 ratio found the Referee. record that in first full does show two (2) solvency ques- The Debtor is years operated by that the business was tionable. Debtor, July 1, $90,000 it lost from finding 1964, 30,1965, The $394,000 Referee based to his June and from corporation July 1, asumption 1965, 30, was to solvent on the June 1966.23 Crosby Emporium 22. The former stockholders stock of the collateral for Brothers, Inc., proof repayment $355,000. filed a of claim of the against Orosby $526,- $355,- the Debtor in the sum of The claim in the sum original parte hearing 000. The had indebtedness been 000 was allowed after an ex by parent organization subordinated, incurred It Referee. was (Kerr’s) purchased however, when it the stock of to the claims of the 50% Crosby Inc., $1,203,000 petitioned Brothers, appellants for The creditors. 70% September 1963, Kerr’s, 30, requesting 1962. On the Referee the order be appel- order obtain the consent of the vacated. The Referee denied the Crosby petition grounds stockholders Brothers lants’ to the it, appellants aggrieved persons. sale of certain real owned were not estate petition appellants’ caused the Debtor and other subsidi- The the District its guarantee aries to execute their written Court for review of the Referee’s order required payments of all be made. was The denied. effect of the Referee’s agreement August, 1966, Crosby In an decision was to subordinate compromised creditors, which claim claim to the 50% 70% give advantage ap- subsidiaries, $355,000, them over the Kerr’s in- and its pellants. cluding Debtor, granted to the Cros- by’s security obliga- as collateral for its included, profit If a LIFO reserve is tion, security interest in the outstand- $82,000 1964-65; resulted for if ing stock Debtor which was sub- 1965-66, it is loss included ject rights Com- Creditors $335,000. reduced to Crosby is mittee. It assumed not sufficient to indicate record holding capital validity including claimants are now reserve. 1966, aggregated $739,265. It that losses in the losses also establishes increasing. Thus, monthly losses continuous and . schedule these is as were August February 1966, 27, follows: Period of Loss Amount (R 273) ......................$ 2/14/66—4 /2/66 (R 274) ......................$ 4/66—4/30/66 4/ 275) (R ......................$ 2/66—5/28/66 5/ 209) ......................$157,453 (R 2/66 6/ 1/66—7/ 210).......................$202,800 (R 3/66—7/30/66 7/ 296) ......................252,878 (R 8/ 1/66—8/27/66 ..............................$739,265 Total require- considering the Debtor terms was an absolute whether able In future, profit in the operate at a ment. could considera- take into failed the Referee to that this testified While witnesses expenses to operating that tion the fact they available, long-term would be credit higher substantially be the Debtor would obtaining did not indicate cost that the they prior time to were than it, nor from it would obtained. whom be testimony inventory liquidated. The was required pay to The was Debtor 12.3% inventory of at least undisputed that an is Cor- Discount to Commercial interest operate necessary $2,000,000 to is money Ac- inventory poration on for advanced his profit. To raise a store at Experience assuming in- dictates that the level, counts Receivable. this even to $1,190,000, ventory ex- inventory value had current at least as loans that are $800,- inventory at least inventory an additional Assuming pensive. loans that necessary. In view be would they could be that would available and be had Receivable Accounts that fact 12.3%, costs the additional for obtained encumbered, substantially already been nearly $100,000 to Debtor would be current depleted, no other the cash year. per cash, into to converted assets available inadequate. (4) The cash long- capital flow or equity either additional flow, discussing Referee, in cash The accomplish required to term credit was stated: goal.24 this test that “Cash flow is one talk good of loose deal While there into account and court has taken availability ad- as to the in the record objector has indicated to the court testimony capital, is no there ditional pro- being adequate in this that as reasonably assume could one which avenues, ceedings. many are There commitments, on a reason- which judicial notice court will take rely upon, ably prudent person had could many that there are avenues working additional been made to may furnish his take to solvent Debtor increase long-term capital. reason- credit at Thus cash flow.” long- validity equity capital its if we assumed the Even in the form of an or inclusion, operate ability $1,- $1,000,000, the Debtor’s to term credit the sum of reasonably profit 500,000 necessary at a would not be insure the fu- to business, shown. ture success of this stands un- controverted. testimony expert witness working appellants, additional nothing justi- find record $220,000 per year We to The additional does fy optimism contingent Referee. not take into consideration the Crosby’s, to required liabilities which required operate amount of cash payments $5,000 per excess month immediately years in the the business beginning January 1, 1968, or an addi- confirmation after tially higher would be substan- $60,000 per year, $116,000 tional due during than it was 1964 and legal accounting fees Decem- requirements 1965. The annual cash 31, 1966, ber nor does the sum include would be increased follows: payments principal on that would have $1,500,000 to be made on $700,000 additional bor- interest 12.3% borrowed Accounts rowed from Receivable and in- C.D.C. to make ventory. required 86,000 Even if the deposit........$ Debtor were able arrangements repay make this sum interest on the addition- 12.3% period years, over a of ten the annual $800,000 required al to raise payments $150,000 additional inventory $2,000,000 would 96,000 .. $ year. Thus the Debtor was faced with Payments Annual cred- 50% strong possibility least of hav- itors .....................$ ing following pay- to make the annual Total..............$229,000 ments :

Payments to creditors...............................$182,000 50% payments Interest on creditors....................$ 50% Contingent obligation ...................................$ Payment to retired indebtedness..........................$150,000

Total......................................$439,000 Payment legal accounting (first year of and only)......$116,000 fees

$555,000 nothing pay present There is in proposed this record to indi- to under its and profits magnitude arrangements. that the of this cate repayment of were foreseeable. While 6) (5, management capable The was the Kerr loan the accordance with and economic conditions were satisfac- proposed Arrangement Plan of would tory. have the relieved situation some- cash might reasonably question While one $375,000 year $75,- the first and what — capability management the of the that per year thereafter, repayment such corporation had led a successful into give would not be sufficient to the need- difficulties, say financial we cannot that ed cash flow. finding clearly this erroneous, of the Referee was apparent It is thus of this Plan nor is there evidence Arrangement reasonably hope record to could indicate that not Referee’s finding that economic conditions were injection to be successful of without the satisfactory clearly is erroneous.25 equity capital very long- substantial or substantially credit term rates lower The sum and substance of Debtor’s problem of purchased interest than the forced appar- Debtor was is that it an though manage- working capi- $1,500,000 the same local Even sion to take remained, ment team it had serious- been tal out of business in the form of a by ly handicapped parent corporation. the new owner’s deci- loan to though appeal pending. $4,775,000. tion even an was ently business successful doing, In re its In relied on thereafter, loan to so the Referee Shortly it amade Co., Lilyknit Inc., 78 which Silk Underwear (2d $1,500,000, parent sum of in the 1934). to re- Referee F.2d Cir. The able parent not been has loan impaired the seriously stated: pay and which working Debtor. “ capital position of the * * * if is re- the confirmation improve attempted its to the Debtor As higher by Court, it will versed inventory liquidating position cash one, duty, trustee’s if ever there Receivable, the pledging Accounts and gross profit payees the monies from the to recover operating ex- cut and was paid to a result of distribu- them as Arrange- penses Plan increased. tion, bring money paid and to so by the proposed confirmed ment may in- back into the This estate. sufficiently to realistic was not Referee great part on the volve deal work no additional trend. With this arrest equity Court, never but this has Court capital and with available work, dreaded, feared nor shunned being unable Debtor’s statement expects operate it its trustees long-term had credit, the support Debtor way. in the same under for success chance no reasonable ****** Arrangement proposed and Plan of argument appeal “As confirmed. pending Appeals for Court of circumstances, Plan these Under Eighth Circuit, pre- I covered this Arrangement feasible26 was not viously judicial no- and the Court takes confirming it of the Referee the decision pendency appeal. tice this clearly erroneous. argument The further has made been creditors, argument distribution not take into does effect appellants rights to re- parties. account the certain failure * * * stay. appeal quest If on the Court finds protected that it has interest of questions are additional Two they parties, pro- certain will be (1) appeal: fact Does the this raised decision, Lilyknit tected under creditors the distribution 73 [F.2d] wherein trustee will 21, 1966, affect on December made rights paid to have recover monies out.” the appeal? appellants this on of the appellees The Field & Co. cite Marshall appellants to (2) the of the failure Does Dry Co., v. Wolf & 120 Bros. Goods authorizing stay request of the order a (8th 1903), support F. 815 the Cir. to rights this on their distribution affect position requires that af- the distribution appeal? firmation In of the decision. Referee’s nega- questions in the answer both We case, dissenting appealed that a creditor tive. ap- to bankruptcy decision of the court Bankruptcy, proving composition at the in a of The for benefit Referee the hearing objection the appellants’ to assenting on the creditors. creditors The creditors, that the stated parties appeal. to were not distribution made to the proceed the distribu- with Funds court would were distributed to the creditors holding Dry Co., Inc., the Plan that Wolfson In view our Saul Goods 299 F. feasible, (5th 1924); Waynesboro Arrangement will we not In was Cir. re Drug Co., (D.C.S.D.Ga.1907). in it was whether F. not discuss detail equally clear, however, Plan creditors. The It the interest of best that the payments generous apparently in the best interest were was so that the accepting the or the Debtor had no those creditors reasonable chance to suc- 70% ceed, they probabilities option than as received more thus the that the were 50% they liquida appellants substantially received under a would have would receive Devine, liquidated. Inc. v. than the Fleischmann & less if business tion. See were appeal perfected. quest stay proceedings upon the This before a of all fil ing granted appellees’ appeal, the motion Court to its and since the Referee was grounds appeal, empowered grant one,27 appellants on that dismiss the to the the assenting required request should been creditors have were to one. doing, parties appeal. to In so made appellees go argue The on to that the page 816, Court, stated: appellants, to failure exercise their “ * ** great body right request stay, The to a have forfeited having composi- accepted right They creditors their relief in to Court. this money paraphrase argument thusly: tion before “Ap- and received their their pellants appeal taken, consequenc- predicament partly this is at its least reversing authority es of approving court own order creation.” No has been composition proposition. be would cited for this Neither the They very would have serious them. Federal of Civil Rules Procedure nor de- money they received, repay have require appellant cisions Court an receiving application stay. and incur the risk a less make for a Rule 73 very plain (d) sum the trustee. It is of the Federal Pro- Rules of Civil bankrupt represent provides not ap- does cedure that whenever an assenting creditors, pellant, thereto, stay and that their entitled desires a require appeal, may present such on interests are as to to the he Court they parties approval supersedeas should be made its a bond added.) appeal.” (Emphasis shall which be conditioned for the satis- judgment together full, faction of the Court, then, appeal This dismissed cost, damages with interest and for de- not made because distribution had been lay. but because the creditors had been parties appeal. made to the The Referee’s decision to make a dis- rely appellees tribution, on Technical also on the insistence of the Debtor Guys Color from and Committee, & Chem. Wks. v. Two Creditors knowledge was made with 1964), Massapequa, (2d consequences F.2d Cir. full case, support position. In its reversal of the Referee’s order. to cred- the Court held that a distribution itors, urge appellees also that even appeal, did not render the after though legal appellants have did not appeal re- moot as stood to the creditors obligation apply stay, their failure more, appellants’ if the contention ceive ought to do so considered this prevailed, this rather than less. While part inequitable Court conduct obviously problems fact lessened given appellants of should which reversal, Court did not indicate weight by reaching this Court in its de- affirmation of lower Court’s decision precedent cision. find no for this We necessarily would result if creditors view. on a re- received less rather than more appellees’ motion to dismiss versal. appeal denied, and this case is reversed appellees contend that also remanded court for ac- the lower right appellants since opinion. re tion had a consistent with this Magidson (8th Duggan, (1934); Foley, (D.C. v. F.2d 180 473 re 4 In F.2d 152 1950); S.D.Cal.1924); Cir. N. Continental Ill. B. & T. and In re Standard Gas Co., Chicago, Co., (3d Co. R. R. v. I. & P. & Electric F.2d Cir. 648, 595, 1943). U.S. 55 S.Ct. L.Ed. 1110

A.

APPENDIX STORES, INC.—DEBTOR DEPARTMENT EMPORIUM and Liabilities of Assets Tentative Statement February as at Prepared Going Basis on a Concern Has Been Tentative Statement This Company Obtained and From Information Records of Books and From the May Adjustments Subject as Management Additional to Such Is From D. Upon Completion Thereof S. Necessary Examination of and Be Stage Accountants, Who, Co., in Their at This & Certified Public Leidesdorf Examination, Opinion Express on This Tentative ain Position Are Not Statement Assets 158,195 $

Cash .......................................... substantially pledg- accounts Customers receivable — amount due to Commercial ed as collateral 3,352,793 Corporation per contra..............$ Discount — 3,237,793 115,000 $ accounts....... Allowance for doubtful Less: inventory mar- at the lower of cost or Merchandise 1,940,213 retail method...................... ket last-in, inventory to reduce Reserve to Less: 350,885 1,589,328 ........................ first-out basis receivables, including balances vendors’ debit Other 27,991 $21,863 ................................... 1,499,435 Kerr’s, (parent company).......... Inc. Due Assets, Fixed at cost: 130,656 ....................... Furniture and fixtures 283,074 n Leasehold improvements ......................

413,730 348,152 65,578 depreciation .... amortization Accumulated charges: and deferred Other assets substantially pledged Unexpired insurance — 65,072 payable per contra...... for notes collateral — 55,274 Supplies ..................................... plus interest accrued Investments —at cost— pursuant pension $9,042 in escrow —held 156,891 compensation agreements per contra deferred — Deposits ..................................... Miscellaneous ................................ 5,928,135 $

Liabilities Corporation per Due to Commercial Discount — 2,475,079 contra ....................................... $ 12,104 Bank overdraft ................................ expenses sundry Accrued liabilities: wages...........................$ 69,028

Salaries and Employees’ withholdings 77,097 ...................... (Other taxes) 162,586 Taxes than Federal income ..... 92,955

Rent ........................................ 15,630 Interest ..................................... gift coupons 20,599 Unredeemed certificates....... Legal professional........................ 11,394 18,729 468,018 Other ....................................... payable insurance—per 33,446 STORES, INC —DEBTOR DEPARTMENT EMPORIUM Operations Statement Tentative August February I, From the Period For Going Prepared Basis Concern Statement Has Been Tentative This Company Obtained From Information the Books and Records Prom May Adjustments Subject Management Additional and Is Such From D. Completion Thereof S. Necessary Upon Examinátion an Be Who, Stage Accountants, in Their Co., at This & Public Certified Not in a Position Leidesdorf Opinion Express Examination, Tentative This Are Statement. $10,011,615 Sales .......................................... 2,790,788 departments.................... Leased Less: 7,220,827 departments ...................... Sales—owned 4,803,281 goods sold.............................. Cost of 2,417,546 profit on sales............................ Gross 253,451 department ...................... income Leased

2,670,997 2,335,777 charges......... carrying Operating expenses less

335,220 income: Other prior year for provision of a excess Reversal 73,527 ..........................$ accounts doubtful 81,480 7,953 ................................ Miscellaneous

416,700 Other deductions:

Interest: 125,899 Intercompany .............................. 1,870 ..................................... Other 77,500 compensation.......... for deferred

Provision n 214,563 9,294 ................................ Miscellaneous 202,137 items shown below............ Net income before 110,166 parent company............. charge from Service inventory.. adjustment LIFO before Net income inventory.. arising LIFO from reduction Credit $ ............... Net income ...................

APPENDIX B. Simplified. February 12th, Balance Sheet for Based on an Unaudited Is Prepared by Company, Statement Assets Liabilities S. D. Leidesdorf and July August A.’s for C. P. the Creditors Committee. Ones of 30th and Prepared by 27th Are Based on Statements the Debtor. Assets Assets

Current 12, 27, Aug. Feb. Jul. 158,000 481,000 493,000 Cash .................. D $ $ $ ) $3,238,000 $2,782,000 $2,741,000 Accounts Receivable Less, ) Pledged Those ) $2,475,000 $1,733,000 C. $1,647,000 D. C............... 763,000 $1,049,000 $1,094,000 Net Accounts Receivable $ Inventory ) $1,940,000 $1,240,000 $1,190,000 at Cost...... Less, ) $1,589,000 $1,017,000 975,000 Reserve .......... $ Adjusted Inventory 351,000 223,000 215,000 A $ $ $ 176,000 200,000 204,000 Other ............. $ $ $ $1,448,000 $1,953,000 $2,006,000

Total Fixed Assets Furniture, Fixtures Improve- and Leasehold 348,000 342,000 340,000 ments ................ $ $ $ 750,000 750,000 750,000

Due from Parent....... B $ $ $ $1,098,000 $1,092,000 $1,090,000

Total ...... $2,546,000 $3,045,000 $3,096,000 Grand Total Liabilities

Current Liabilities Payable $1,779,000 $2,391,000 . $2,560,000

Accounts E Expenses 468,000 343,000 348,000 Accrued $ $ $ 12,000 110,000 115,000 Other ............ F $ $ $ $2,259,000 $2,849,000 $3,018,000 Total Long-Term Liabilities Payable.......... 33,000 8,000 8,000

Assuming Inventory at Cost: 1 1 to 1.04 to .98 to 1.34

Ratio.................... 37,000) ($ 778,000 Capital...... 121,000 Working $ $ Net $1,036,000 $1,554,000 Assets, $ Liabilities .. Minus Assuming Inventory Value: Leidesdorf to 1 to .64 .66

Ratio.................... .69 811,000) ($ 896,000) ($1,012,000) Working Capital ($ Net ...... 96,000) ($ Assets, ($ 35,000) ($ 19,000) Minus .. Liabilities below for notes to financial See statement. by policies adopted A. establish a to reduce Pursuant Debtor to reserve

inventory inventory last-in, basis, at the first-out Leidesdorf valued the shown. The for are estimates. amount reserves other dates $1,499,000 being B. statement as due The Leidesdorf shows the sum of parent, Arrangement by parent. Plan of payment submitted Debtor from the provides $750,000. however, the Debtor a maximum employee pensions of a reserve C. The Leidesdorf statement established Hunsinger $296,000, compensation payable in the and a reserve for deferred by $157,000 $150,000. were asset of These liabilities non-current sum of offset liability $289,000 as is the held United as collateral. net securities computed Leidesdorf. $380,000 $68,000 certificate sum cash on hand and a D. This included Arrangement. deposit creditors under the Plan held for the benefit of $961,000, $80,000; $858,000; Merchandise, $492,000; Expenses, Leases, E. Arrangement. Payable Plan frozen under the Accounts long-term Including portion $38,000 debt. F. of the current liability computed as G. this follows: Debtor Compensation ..................$ Deferred Pensions.....................$272,000 Reserve

$328,000 Pledged Less, Collateral .........................$156,000 Appellant

$172,000 Less, Investments for Purpose .................$ Undisclosed .........................$169,000

Balance

APPENDIX C. Depo. Petitioner's Stores, Emporium Dept. Inc. Store — Comparative Balance Sheet of November This Tear Last Tear $ $ Assets Current Assets 184,947 233,913

1 Cash ....................................$ $ 2,372,381 3,085,479 2 Oust. Accts. Rec. Less Reserves........... 1,657,594 2,477,344 3 Rec. Oust Accts. Sold..................... 4 Other Receivables Inventory 2,337,051 (Net).............. 1,165,208 Merchandise 5 Prepaid Expenses 99,698 127,656

6 ........................ 70,642 210,141 7 Other Current Assets..................... 2,374,781 3,377,397 8 Total Current Assets........................ Fixed Assets

9 Land Buildings (Net) 10 (Net)....................... 101,806 145,259 11 Furn. & Fixt. Imp. (Net) 228,611 155,749 12 Leasehold ..................... (Net) 13 Other Fixed Assets 330,417 301,008

14 Total Fixed Assets.............. 15 Total Other Assets Charges..................... 159,130 158,727

16 Total Deferred (Old).................... 818,595 996,090 17 Inter Co. Account — (New)................... 37,476 Inter 18 Co. Account — 3,720,399 4,833,222 19 Total Assets ...............................

79 Liabilities Liabilities

Current Payable 20 Notes —Bank 248,898 Payable .................... 21 Notes —Other (cid:127)1,884,869 1,454,378 Payable ........................ 22 Accounts 202,364 344,931 Expenses................ & Taxes Accrued 88,287 61,578 Liabilities................. Current Other 38,567 54,292 Long Term Debt........ Portion Current 2,229,812 2,148,352 Liabilities.................... Current Total Long Liabilities Term Payable Due 1970 Debentures 29 7% 333,793 405,405 ..................... Pensions 30 Reserve 652,629 344,993 Long Liabilities............... Term 31 Total 2,574,805 2,800,981 Liabilities............................ 32 Total Equity, Etc. Stockholders’ 208,990 208,990 Stock ........................... Common 33 Preferred 34 Cumm. 5%% Notes —Stockholders 35 Subordinated 355,117 [338,533] Surplus ........................... 36 7/31/66 46,651 70,847 Surplus ................. 37 8/1/66 —11/26/66 1,647,659 Adjust..................... 38 Reserve —Lifo Real Estate 39 on Sale of Gain (Less) Treasury Stock —Cost 2,258,417 Equity, etc................ 41 Total Stockholder 4,833,222 Equity, 3,720,399 & Etc................ Liabilities 42 Total Working Capital Net 3,377,397 2,374,781 ........................... Assets Current 2,229,812 2,148,352 Liabilities................... Less Current 1,147,585 Working Capital...................... Net 1.5 to 1 1.1 to 1 Ratio ............................ Current I. Ex.

Petitioner’s STORES, INC. DEPT. STORE —EMPORIUM February Comparative Sheet as Balance Last Year This Year Assets Assets

Current 347,264 40,943 $ .....................................$ Cash 3,029,631 2,135,717 Reserves............ Rec. Less Accts. Cust. 2,311,258 1,526,489 Rec. Sold.................... Accts. Cust. Receivables Other 1,806,656 849,759 (Net).............. Inventory Merchandise 124,753 56,882 Expense Prepaid ......................... 115,616 98,909 Other Current Assets..................... 3,112,662 1,655,721 ....................... Assets Current Total Fixed Assets

Land (Net)

Buildings 108,203 97,932 (Net)....................... & Fixt. Furn. 243,663 222,605 Imp. (Net) ..................... Leasehold (Net) Fixed Assets Other 351,866 320,537 Fixed Assets........................ Total Total Other Assets Charges .................. Total Deferred 1,435,346 .............. Co. Account 17 Inter 2/12/66 166,662] ............................[ 18 After 2/12/66 5,058,601 2,718,726 ............................. Assets 19 Total 82

Liabilities

Current Liabilities Payable 20 Notes —Bank Payable 75,000 21 Notes — Other..................... Payable 1,986,535 978,035 22 Accounts ........................ Expenses................ 248,059 318,865 Accrued Taxes & 62,013 29,094 Other Current Liabilities ................. Long 50,510 35,567 Current Portion Term Debt........ 2,417,923 1,365,755 26 Total Current Liabilities.................... Long Term Liabilities ' Payable 8,349 8,800 Completed 3-9-67 at P. 2:30 M. Rehearing.

On Petition for carefully peti- We have reviewed rehearing appellees tion request petition their that said heard and determined this Court en bane. appellees’ petition that the rehear- ing be en heard determined banc is denied, request rehearing. as is its for a peti- While financial statements of tioner, antedating the decision Referee, by the were referred to Court appendix in a footnote and the to the decision, the Court’s decision based amply supported on and the record made before the Referee and the Court.

Although the financial statements- re- proceeding ceived evidence in in the Bankruptcy Court for the District seeking petitioner Minnesota to have the bankrupt, declared a indicated that petitioner’s financial condition continued after deteriorate the confirmation of plan, they necessary sup- the port were not Court, the decision of the nor were they so considered. HOMES, INC., SCHOLZ Plaintiff- Appellant,

v. MADDOX, Jr., Jake H. and Boland-Ma Katzinski, Louisville, Ky., for William loney Inc., Company, Lumber appellant. Defendants-Appellees. Stopher, Louisville, Ky., Joseph E. No. 17001. Joseph Deindoerfer, Stopher, E. A. J. Appeals United States Court of Deindoerfer, Boehl, Stopher, Graves & Sixth Circuit. Louisville, Ky., brief, for Maddox. June Ky., Grafton, Louisville, Arthur W. Grafton, Lampe,

Stuart E. A. Wallace Jr., Louisville, Wyatt, Sloss, Grafton & Ky., Boland-Maloney Lumber Co. PECK, CELEBREZZE, Before Judges. McCREE, Circuit

McCREE, Judge. Circuit appeal an order dis-

This missing plaintiff-appellant’s complaint Notes contra ........... — payable 1,779,347 Accounts ........................ —trade employee pensions per Reserve for contra....... — compensation payable per Deferred contra...... — 5,213,726 $ Excess of over Assets Liabilities $

Notes

Notes $ $ Employee Reserve for Hunsinger Pensions & Compensation 289,000 169,000 166,000 Deferred C $ $ G $ Total .......... $ $ $ Total____ $2,581,000 $3,026,000 $3,192,000 Grand

Notes — Insurance................. Pay............ Payable Mortgage —Accts.

Notes — Insurance................. Mortgage Payable Pay............. 186,381 —Accts. Debentures Due 7% 357,982 388,215 Reserve for Pensions...................... Long 582,945 336,782 Total Term Liabilities .............. 1,948,700 2,754,705 Liabilities............................ .Total Equity, Stockholders’ Etc. 208,990 208,990 Common Stock ........................... 5Cumm. Preferred Subordinated Notes —Stockholders Surplus 276,293] 355,117 .........................,[ 7/31/66 Surplus (2/25/67) 92,130 140,785] ................[ 8/1/66 — Adjust.................... 1,647,659 978,114 Reserves —Lifo Gain Sale Real Estate (Less) Treasury Stock —Cost 2,303,896 Equity, Total Stockholder etc.............. Equity, 5,058,601 Etc................2,718,726 & Total Liabilities Capital Working Net 3,112,662 1,655,721 Current Assets ........................... 1,365,755 2,417,933 Less Current Liabilities................... Capital...................... Working Net ............... n ............ Ratio Current 1.2 1.3 to

Case Details

Case Name: United Properties Incorporated, and Hans Bodsgard v. Emporium Department Stores, Inc., Debtor, and Its Creditors Committee

Court Name: Court of Appeals for the Eighth Circuit

Date Published: Jul 5, 1967

Citation: 379 F.2d 55

Docket Number: 18610_1

Court Abbreviation: 8th Cir.