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In re Patten Paper Co.

December 2, 1936

IN RE PATTEN PAPER CO., LIMITED; NORTHERN PAPER MILLS ET AL.
v.
CARY ET AL. (TWO CASES)



Appeals from the District Court of the United States for the Eastern District of Wisconsin.

Author: Evans

Before EVANS, Circuit Judge, and LINDLEY and BRIGGLE, District Judges.

EVANS, Circuit Judge.

These appeals concern the jurisdiction of a District Court in 77B proceedings over pledged stock in other corporations, where debtor's interest is that of pledgor or assignee of pledgor's equity. The District Court sought by the orders appealed from to effect a most advantageous sale of said stock, possible only if a controlling interest could be transferred. Without a successful culmination of this effort to secure and sell a controlling interest of the company, the most feasible, practicable plan of reorganization could not be worked out.

The questions presented on the two appeals involve similar legal questions and will be disposed of in one opinion.

The fact situation is difficult to present because of the numerous parties and pledge contracts involved in the various transactions. As to personnel involved:

Patten Paper Company is the debtor.

Northern Paper Mills is in the most instances the corporation whose stock is the subject of pledge.

Western Ontario Land Co. is a wholly owned subsidiary of Patten Paper Co.

Marshall Ilsley Bank and Inland Paper Co. are other companies whose stock is pledged.

Directors of the Northern Paper are: Buchanan, Weissenborn, Harwood, Purdy, Murray, Wagner (also trustee under previous agreement of pledge by debtor to secure creditors), Tuttle, Goodman (executrix of former director), Judson Rosebush, former manager of Northern Paper Co. and formerly controlling stockholder and officer of Patten Co., Mrs. Barbara McNaughton Rosebush, Cary, trustee of debtor, Newton, an engineer and promoter whose contract (or option as appellee calls it) to purchase 40,000 shares of Northern Paper (a controlling interest) at $16 was approved by the court and was the basis of the plan of reorganization. It was the immediate cause of the present litigation.

The pledged stock was (mainly) that of the Northern Paper Company. The chief pledgor, Rosebush (and his wife, also a pledgor) was a former officer of debtor who had assigned his (and her) equity in the pledged stock to the debtor. Debtor also pledged two blocks of stock. Some of the pledged stock had been sold before the entry of the injunctional order, but after the filing of the petition. The District Court ordered the sales set aside. Pledgees and purchasers were ordered to turn the stock over to a depositary (their lien to attach to the proceeds) and were ordered to refrain from negotiating for any Northern Paper stock which would prevent the debtor's trustee from acquiring a controlling interest and defeat consummation of the Newton contract, which provided for the payment of $16 per share of Northern Paper stock only if a majority interest were obtained.

A chronological history of facts is set forth in the margin.*fn1

Also is set forth a chart*fn2 of the blocks of stock involved and the intricacies of each transaction, and they are hereafter ...


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