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In re Riddlesburg Mining Co.

decided.: July 1, 1955.

IN THE MATTER OF RIDDLESBURG MINING COMPANY, INC., DEBTOR. APPEAL OF DON A. MARSHALL, PERSONALLY, AND COMMERCIAL COAL & COKE CORPORATION AND WALDO & MALTBY, INC. APPEAL OF DON A. MARSHALL, PERSONALLY, AND WALDO & MALTBY, INC.


Author: Staley

Before McLAUGHLIN, STALEY and HASTIE, Circuit Judges.

STALEY, Circuit Judge.

In the matter of the proceedings for reorganization of Riddlesburg Mining Company, Inc., under the corporate reorganization section of the bankruptcy statute, 11 U.S.C.A. § 501 et seq., appeals have been taken to this court with reference to four orders entered therein. The appeals were argued together and will be covered by this opinion.

On January 5, 1953, certain creditors filed a petition for reorganization of the Riddlesburg Mining Company in the district court for the Western District of Pennsylvania, alleging, inter alia, that the company was unable to meet its debts as they matured. The petition set forth an approximate statement or narrative of assets and liabilities, including disputed liabilities, and alleged that a mortgage foreclosure proceeding had been instituted against the real estate of the debtor in the Court of Common Pleas of Bedford County, Pennsylvania, and that reorganization was necessary to prevent severe losses to the debtor company and its creditors.

The day the petition was filed, a hearing was held thereon with regard to the matter of good faith, and on the following day, January 6, 1953, the district court entered an order approving the petition, appointed a trustee for the debtor, and enjoined certain mortgage creditors from proceeding with the foreclosure action pending in the state court. Subsequently, on February 10, 1953, an order was entered permitting the debtor to answer. The answer, when filed, admitted the allegations of the petition. On February 26, 1953, the first and second mortgage creditors filed a controverting petition, challenging the good faith of the petition and praying for a dismissal thereof.

On May 24, 1954, the district court denied appellant's prayer, which asked that the order of January 6, 1953, approving the petition be vacated and that the petition be dismissed.

Appellants challenge this May 24th order, and contend that the district court erred in finding good faith. The question of good faith is essentially one of fact, and a district court's determination will not be disturbed unless clearly erroneous.*fn1 After an examination of the various arguments offered by the appellants, we cannot say that the district court's determination was clearly erroneous. The appellants' main argument, among several, is that it was not reasonable at any time to expect that a plan of reorganization could be effected, and therefore under Section 146, 11 U.S.C.A. § 546, the petition should have been dismissed.

The issue raises questions of fact, and without attempting to review all the facts in evidence by testimony or affidavit, we enumerate a few of the significant ones: The reorganization petition was supported by many of the secured and unsecured creditors, as well as by the debtor's stockholders, and the debtor itself; the debtor had assets consisting of coal lands and other equipment incidental to a coal operation. The value of the assets when the petition was filed was an important determination with regard to possible reorganization. Opinions as to the value of the assets, which had been considered very valuable a few years prior to the filing of the petition, were contradictory and varied greatly.

From this difference of opinion as to the debtor's assets and the extent of its liabilities the district court concluded that a reasonable chance of reorganization existed. The perspective of hindsight does not, of course, affect the original determination that reorganization was reasonably possible and cannot provide a basis for reversing the district court.

An appeal was also filed from another order of the district court entered on May 24, 1954, by which order the district court adjudicated the debtor a bankrupt, following its inability to promulgate a plan of reorganization, and retained jurisdiction over the debtor's assets for the purpose of paying administration expenses incurred during the period of attempted reorganization.

Under Section 236 of the statute, 11 U.S.C.A. § 636, two courses were open to the district judge after it became apparent that reorganization was not possible. It was within his discretion to dismiss the petition and end the proceedings or to adjudicate the debtor bankrupt and proceed as though the original petition had been one in bankruptcy. No adequate reason has been advanced by the appellants to support their contention that there should have been a dismissal and the consequent transfer of the contests to other tribunals, and so it cannot be said that there was an abuse of discretion by the district court.

As to the second part of this May 24, 1954, order, it is the strenuous argument of the appellants that it would be inequitable to pay the administration expenses from the proceeds of the mortgaged premises to the possible detriment of the mortgage creditors in view of the fact that the mortgage creditors throughout the proceeding actively fought for its dismissal. They claim that the district court had no authority to retain jurisdiction as it did. The reply of the appellees is that the district court did have the authority and also that the objecting mortgage creditors were mainly responsible for the failure of the reorganization attempts because the proceedings were handicapped and delayed in part by a spurious excessive claim put forth by one of the appellants under its mortgage.

Section 246 of the Bankruptcy Act, 11 U.S.C.A. § 646, gives the judge authority to allow reasonable compensation for administration expenses incurred during a reorganization attempt. There is no limitation with regard to secured or unsecured assets. Whether, and to what degree, the mortgage creditors should run a risk of loss in order to make possible a reorganization was wholly within the discretion of the district judge,*fn2 who properly exercised his discretion.

An appeal has also been taken from the "Opinion of Wallace S. Gourley, Chief Judge," filed June 30, 1954, D.C., 122 F.Supp. 560. That opinion was filed contemporaneously with the entry of an order by Chief Judge Gourley, and we will treat the aforesaid reference to an "Opinion" in the notice of appeal as a ...


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