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In re Marachowsky Stores Co.

April 13, 1951


Author: Finnegan

Before MAJOR, Chief Judge, and KERNER and FINNEGAN, Circuit Judges.

FINNEGAN, Circuit Judge.

Certain creditors of appellant, Marachowsky Stores Company, a Wisconsin corporation, on November 25, 1947, filed a petition in the District Court for the Western District of Wisconsin, seeking to have the corporation declared bankrupt. Appellant answered the petition on December 5, 1947. Subsequently, and on January 12, 1948, an amended petition with the same object was filed against appellant.

On January 16, 1948, it appearing that the petitioning creditors and appellant had entered into a stipulation in which they consented and agreed that the court appoint custodians to take over the operation and management of said Marachowsky Stores Company, the court appointed L. A. Hasse and Daniel C. O'Connor, as custodians of the business, property and assets of the appellant company. The custodians were directed to take possession of the business and to operate it for ninety days, or such additional time as the court might direct. It was further ordered that the management and control should be under the supervision of the court, and that none of the managing officers or supervising employees of the appellant corporation should be employed by the custodians. Apparently Daniel C. O'Connor alone qualified and proceeded to act as custodian.

On March 8, 1948, the matter again came on for hearing before the District Court. As a result of the proceeding then had, Mr. O'Connor was continued as custodian until the further order of the court. He was given complete charge of the entire business, to operate it for the court. He was likewise given sole supervision of the employees with power to hire and fire such employees as he pleased. He was authorized to use $10,000 which had been deposited by Mr. Louis Hasse, to operate the business, to pay taxes and insurance premiums then due. The court ordered that Mr. Hasse should have first lien on all the assets of the Marachowsky Stores Company to secure the repayment of the $10,000 he had advanced. The court directed that Marachowsky should have nothing to do with the operation of the business and that Mr. Hasse was no longer a custodian, the court stating: "It is being operated by this court, and Mr. O'Connor is the officer of this court operating that business."

In the meantime, hearings on the petition to declare the Stores Company bankrupt were held on various dates from January 12, 1948 to September 19, 1949. Neither the record submitted on this appeal nor the briefs of the parties show any reason or offer any explanation for the long delay in determining the solvency of the alleged bankrupt.

Finally, on November 1, 1949, the cause came on for final hearing on the alleged insolvency of appellant. At that time, Daniel O'Connor, the custodian, presented his verified petition seeking compensation for his services and reimbursement for his expenditures. The petition was accompanied by a statement of account. He requested compensation at the rate of $1200 per month for 21 months and 15 days, amounting to $25,800, on account of which $8500 had been paid by court orders.His account showed expenses and disbursements to the amount of $868.47 on which $145.65 had been paid by order of court, leaving a balance due for expenses of $722.82.

The court on that day ordered that the petition and amended petition of the creditors seeking to declare appellant bankrupt be dismissed. It was further ordered that there was due and owing Daniel O'Connor, as custodian, for balance due on his fees and disbursements the sum of $18,022.82; and that the custodian should have a first lien on the assets of Marachowsky Stores Company until said sum was paid. It was further ordered that the order then entered should be effective on November 10, 1949 to enable the custodian to liquidate current obligations, incurred by him during the period of custodianship, out of the funds and property of the company in his hands.

On November 10, 1949, the court finding that the custodian had to the best of his ability determined and paid the current obligations incurred by him, and that it would take some time to close the books of the company up to the effective date of November 10, 1949, ordered that the custodian and his accountants be given access to the books of the corporation to prepare a balance sheet as of the close of business on November 9, 1949. It was further ordered that if any current accounts remained unpaid through inadvertence, they be paid out of the assets of the company or out of funds in the hands of the court; that the custodian be paid $8,000 on account within 30 days, and the balance due him within 60 days, and that the clerk of the court be authorized to make such payment out of funds deposited or to be deposited, with the court. The appellant company was then ordered to deposit with the clerk of the court funds sufficient to pay the fees and expenses of the custodian, and in addition $10,000 to repay Louis Hasse for monies advanced by him; a lien was imposed on the assets of the company for these fees and expenses of the custodian and the advances made by Louis Hasse. The court retained jurisdiction to enforce its orders and directed that the custodian file a copy of the audit report of the company and a statement that all obligations incurred during the custodianship had been paid.

Twenty-two days later, on December 3, 1949, the appellant company filed a petition which it denominated a petition for "review and rehearing" of the orders heretofore made on November 1, 1949 and on November 10, 1949, and requested "the court for a modification and revision of said order for the reason that the fees are excessive." The petition itself was not verified; it was signed by the legal firm then representing appellant, and was not supported by accompanying affidavits.

On December 15, 1949, a hearing was had before the District Court on said petition for review and rehearing. All parties were present and represented, and a complete transcript of the proceedings therein are included in the record before us on this appeal.

On December 23, 1949, the District Court entered an order that "the petition to review and vacate the orders of this court heretofore entered in this proceeding dated November 1, 1949, and November 10, 1949, awarding, * * * be and the same is hereby denied, with costs and attorneys' fees in favor of Daniel O'Connor, in the sum of $100 and against the Marachowsky Stores Company."

On January 20, 1950, appellant filed its notice of appeal to this court "from the order and judgment entered herein on December 23, 1949, denying the petition to review and vacate the orders of the court entered on November 1, 1949, and November 10, 1949, relating to fees and disbursements to be allowed Daniel C. O'Connor, custodian herein, and from the whole thereof."

At the outset we are confronted by the contention of appellee that the appeal should be dismissed. Our first step must be to consider and dispose of that contention. In such consideration it must be remembered that the General Orders in Bankruptcy numbered 36 and 37, 11 U.S.C.A. following ยง 53, provide as follows:

"Order 36. Appeals shall be regulated, except as otherwise provided in the Act, by the rules governing appeals in civil actions in the courts of the United States, including the Rules of Civil ...

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