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In re Standard Brass Corp.

December 21, 1967


Hastings, Chief Judge, Knoch, Senior Circuit Judge and Castle, Circuit Judge.

Author: Knoch

KNOCH, Senior Circuit Judge.

The Bankrupt, Standard Brass Corporation, filed its bankruptcy petition July 9, 1965. Philip B. Johnson was appointed Receiver, and, subsequently, elected Trustee by the general creditors on August 30, 1965, after which he adopted his own acts as Receiver.

When the bid on the plant of the Bankrupt, realty and personalty as a whole, was exceeded by bids on the personal property and realty separately, these were sold as separate items. The personal property was sold to Samuel J. Winternitz for $145,000 and the realty to the respondent-appellant. The Farmers National Bank of Belvidere (hereinafter sometimes called "the Bank") for $72,500.

Several creditors claimed ownership or security interests in the personalty. There was a federal tax lien for $11,133 on file. The realty was encumbered by a Trust Deed dated April 2, 1965, securing a note for an original principal sum of $72,000 (reduced to $71,021.90 by payment) held by the Bank.

The Bank announced that it would set off its secured claim against the bid. Both sales were confirmed the same day they were made: August 30, 1965. On receiving the earlier notice of the Receiver's application to marshal liens and sell the entire property free and clear of liens, the Bank had filed objections to the sale of the real estate, but at the hearing on the application, August 30, 1965, which was held at the same time as the first meeting of creditors, the Bank's objections were overruled, and the realty offered forthwith for sale the same day at public auction before the Referee. The Bank was the successful bidder.

On September 14, 1965, the Trustee filed an application to apportion expenses. On October 25, 1965, the Referee authorized the Trustee to disburse as expenses of administration, the total sum of $6,152.90 for Receiver's fees, unpaid liabilities and attorney's fees.

Another problem arose in connection with the sale of the realty. On March 15, 1966, the Trustee moved to amend the order of August 30, 1965, confirming the sale of realty to correct the legal description of the real estate purchased by the Bank to include a specific description of the parcel comprising the adjacent Boone Street area which was allegedly vacated by ordinance, on agreement of the parties that the Receiver intended to sell and the Bank intended to buy all of the Bankrupt's real estate. The order of August 30, 1965, was so amended nunc pro tunc on March 17, 1966.

The Referee decided that it would be proper to apportion against the lien creditor Bank a reasonable share of the expenses attributable to the sale which he thought should bear some relationship to the approximate cost of foreclosure and sale which he estimated would have been about $4,433. However, he considered not just the sale of the realty but the sale of the entire plant including both realty and personalty. The total sale price had been $217,500 of which the realty brought $72,500 or one-third. In computing expenses he made no allowance for Trustee's fees as those would come from the assets of the estate, but he found chargeable expenses of the Receiver in the amount of $1,093.61 and allocated one-third of these to the realty. He also allocated an amount to be due the United States for the Referees Salary and Expense Fund (computed on the sale price of the realty) at $1,700. He allocated one-third of the Receiver's fees (allowed in the sum of $1,900) or $633.33.

He computed the allocable part of the fees to the Receiver's attorney as follows: the amount of the total fee for services up to August 30, 1965, the date of the sale, allocable to services connected with the sale, he found to be $2,100 of which one-third was $700. In estimating services during the protracted controversy after the sale, he gave consideration to testimony of an attorney for the Bank that the charges made to the Bank for legal services were in excess of $2,750 for 87 1/2 hours including services in connection with other matters than opposing the applications and motions of the Receiver-Trustee. The Referee deducted $1,000 and allocated $1,750 making a total of $2,450 as fees for the Receiver's attorney which he charged to the real estate. That made a total of $5,147.87.

It was the Referee's judgment that $4,750 would be a fair and reasonable share of the expense to apportion against the Bank and he accordingly entered an order directing the Bank to pay the Trustee $4,750. We hold that the entry of that order was improper in the circumstances here.

With respect to the land conveyed, however, the Referee felt that the evidence thus far adduced was inadequate to decide the ownership of the added parcel, Boone Street. If any of the lands dedicated to street purposes in the original platting in 1856 had been lawfully vacated, then title would have passed to the abutting land owners, each taking to the center line of the street. The Referee saw complications arising from the fact that a corner of the factory building rested on land to which he thought Standard Brass had no valid claim of ownership even if there were a valid vacation ordinance.

There was testimony by the Bank's president that the City of Belvidere had adopted a vacating ordinance several years before but that this was missing and could not be found when title had been brought down to date after the Receiver's sale. However, another vacating ordinance was subsequently adopted. The Trust Deed executed within four months of the bankruptcy (although no question of preference was raised) did not specifically describe the Boone Street area. The referee was also concerned about federal tax liens and claims some of which, he stated, were of record prior to the bankruptcy. He felt that there were uncertainties as to whether other creditors might have some claim on the Boone Street area, assuming that the Bankrupt had owned it, and he, therefore, reopened the case for further hearing after notice to all unsatisfied lien claimants to determine the ownership and title to the property involved and the amount, validity and priority of the liens claimed.

The Referee's findings of fact and conclusions of law were affirmed by the District Court ...

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