WALKER et al. v. MORGAN & BIRD GRAVEL CO., Inc., et al.

WALKER et al. v. MORGAN & BIRD GRAVEL CO., Inc., et al. Circuit Court of Appeals, Fifth Circuit. July 12, 1927. Rehearing Denied Aug. 10, 1927. No. 4985. 1. Bankruptcy <§=>60 — Appointment of receiver, to constitute act of bankruptcy under statute, must have been based on judicial determination of debtor’s insolvency, and not on debtor’s consent (Bankruptcy Act, § 3a [II U. S. C. A. § 21a]). Under Bankruptcy Act, § 3a (11 U. S. C. A. § 21a), prior to amendment by Act May 27,1926, § 3, making appointment of receiver or trustee because of insolvency act of bankruptcy, appointment of receiver must have been based on judicial determination of the debtor’s insolvency, and appointment pursuant to debtor’s consent, in absence of hearing on application for receiver, or any admission or judicial determination of his insolvency, is not an act of bankruptcy. 2. Bankruptcy <§=>60 — Petition that corporation be adjudged bankrupt held improperly dismissed on theory that appointment of temporary receiver with consent of corporation was act of bankruptcy occurring more than 4 months before filing of petition (Bankruptcy Act, § 3a [I I U. S. C. A. § 2!a]). Where, on petition for appointment of receiver on ground that corporation was insolvent and mismanaged, and the granting of continuance on motion of corporation, temporary receiver was appointed with consent of corporation, and where, after expiration of continuance granted and filing of supplemental petition, court appointed permanent receiver on admission of corporation’s insolvency, held, under Bankruptcy Act, § 3a (11 U. S. O. A. § 21a), prior to amendment by Act May 27, 1926, § 3, petition that corporation be adjudged bankrupt, filed within four months after appointment of permanent receiver, was improperly dismissed on theory that act of bankruptcy occurred when temporary receiver was appointed more than four months previously. 3. Bankruptcy <§=>60 — Appointment of receiver because of insolvency, if erroneous under state statute, held nevertheless act of bankruptcy (Act La. No. 159 of 1898; Bankruptcy Act, § 3a [II U. S. C. A. § 21a]). Stale court’s appointment of receiver for dorporation because of insolvency, though possibly erroneous under Act La. No. 159 of 1898, held none the less an act of bankruptcy, within Bankruptcy Act, § 3a (11 U. S. O. A. § 21a), prior to amendment by Act May 27, 1926, § 3. 4. Bankruptcy <§=>76(3) — Creditors’ limited participation in receivership proceedings he!d net estoppel to maintain involuntary bankruptcy proceedings against debtor. Creditors’ participation in receivership proceeding, to extent of complying with temporary receiver’s request for itemized and verified statements of their claims, held not to estop them from maintaining involuntary bankruptcy proceedings against debtor. Appeal from the District Court of the United States for the Western District of Louisiana; Benjamin C. Dawkins, Judge. Bankruptcy proceeding by M. T. Walker and others against the Morgan & Bird Gravel Company, Ine., represented by J. P. Wilkinson, receiver. Prom a decree dismissing petition, petitioners appeal. Reversed, and cause remanded. Jos. D. Barksdale, Otis W. Bullock, and Howard B. Warren, all of Shreveport, La. (Barksdale, Bullock, War ron, Clark & Van Hook, of Shreveport, La., on the brief), for appellants. J. D. Wilkinson, C. H. Lewis, and W. S. Wilkinson, all of: Shreveport, La. (Wilkinson, Lewis & Wilkinson, of Shreveport, La., on the brief), for appellees. Before WALKER, BRYAN, and FOSTER, Circuit Judges. [MAJORITY — WALKER, Circuit Judge.] WALKER, Circuit Judge. This is an appeal from an order or decree dismissing a petition filed on March 26, 1926, by the appellants, four alleged creditors of Morgan & Bird Gravel Company, a Louisiana corporation, which prayed that that corporation be adjudged bankrupt; the petition alleging as an act of bankruptcy that said corporation, because of insolvency, was, on February 4, 1926, placed in receivership by judgment of the first district court in and for Caddo parish, Louisiana, in a suit brought by M. M. Moreloek against said corporation, which judgment appointed as receiver a named person, who qualified as such receiver and was performing the duties of that trust at the time of the filing of the petition. The suit in which the receiver was _appointed was instituted on August 11, 1925. The petition in that suit alleged that said corporation was insolvent, and that its managing officers, including its president, were grossly mismanaging its business, by committing alleged ultra vires acts, and by wasting, misusing, and misapplying its funds. On August 31, 1925, said corporation, before filing an answer to the petition in that suit, filed a motion for a continuance, on the .ground that its president, T. G. Roberts, who was a material witness, was ill and unable to attend to business or to testify in the ease. That motion was granted on the day it was filed, and on the same day a temporary receiver was appointed by a judgment whieh contained the following: “This matter coming on to be beard, and by reason of the agreement of the respective parties representing the plaintiff: and defendant: It is ordered, adjudged, and decreed that a temporary receiver be appointed to take charge and administer the affairs of the defendant company, until the further orders of the court, or until a héaring can be had on the application for the receiver herein, and accordingly J. P. Wilkinson, having been agreed upon by the respective “parties, is appointed temporary receiver of said corporation on giving bond in the sum of $5,000, and taking the oath prescribed by law, and that he take charge of and administer as temporary receiver the entire property and affairs of the defendant corporation, subject to the orders of this court. * * * “This appointment of said temporary receiver is made without prejudice to the rights of the defendant to have the case on its merits tried for such receiver, and on trial of said case, and final judgment'thereon, the fune•tions of said temporary receiver shall cease. The functions of said temporary receiver, however, shall end with the judgment of this court, irrespective whether a suspensive appeal is taken therefrom.” No answer to the original petition in that suit was filed until after the plaintiff in that suit had filed a supplemental petition, which repeated the allegation that said corporation was insolvent and alleged additional reasons for the appointment of a receiver of its properties. The answers to the original and supplemental petitions denied all the allegations of mismanagement of the corporation’s business and of misconduct of its managing officers, but admitted the allegations of' the corporation’s insolvency. Upon the submission of the cause on the original and supplemental petitions and the answers thereto, the court adjudged that a receiver be appointed to take charge of the property and affairs of said corporation, and appointed as such receiver the person who previously had been appointed temporary receiver, as above stated. The record discloses that the dismissal of the bankruptcy petition was a result of the conclusion that the act of bankruptcy relied on occurred when the temporary receiver was appointed, more than four months prior to the filing of the bankruptcy petition. For the appointment, of a receiver of a debtor’s property to come within the meaning of the provision of the Bankruptcy Act (11 U. S. C. A. § 21a), prior to its amendment by the Act of May 27, 1926 (44 Stat. 662), making it an act of bankruptcy of a debtor that “because of insolvency a receiver or trustee has been put in charge of his property under the laws of a state, of a territory, or of the United States,” the appointment of the receiver must have been because of a judicial determination of the debtor’s insolvency. An appointment of a receiver pursuant to the debtor’s consent, and in the absence of a hearing on the application for a receiver, or of any admission or judicial determination of his insolvency, was not an act of bankruptcy. Hooks v. Aldridge (C. C. A.) 145 F. 865; In re J. W. Ward Farming Co. (C. C. A.) 295 F. 60; Zugallo v. International Mercantile Agency (C. C. A.) 142 F. 927; In re Douglas Coal & Coke Co. (D. C.) 131 F. 769; In re Sedalia Farmers’ Co-Op. Packing & Produce Co. (D. C.) 268 F. 898. It plainly appears from the record in the state court suit that the action of that court in appointing a temporary receiver was based on the agreement of the parties to the suit, and not on a hearing on the application for a receiver, or on an admission or judicial determination of the debtor’s insolvency. The appointment of the temporary receiver, in the circumstances disclosed, was not an act of bankruptcy. When the receiver was appointed, following the submission of the cause on the original and supplemental petitions and the answers thereto, there was no basis for that action of the court, except the admitted insolvency of the debtor, as all allegations of other grounds for the appointment of a receiver were denied and were unsupported by proof. We are of opinion that the record requires the conclusion that the action of the state court in putting the debtor’s property in charge of a receiver was because of its insolvency, and that the act of bankruptcy relied on occurred within four months prior to the filing of the bankruptcy petition. It was-suggested that under the law of Louisiana (Act 159 of 1898; State ex rel. Dauphin v. Ellis, 108 La. 521, 32 So. 335) the state court was without power or jurisdiction to appoint' a receiver of the debtor’s property because of insolvency prior to the creditor obtaining a final judgment. The action of that court, which is one of general jurisdiction, in appointing the receiver, having in fact been taken because of the debtor’s insolvency, the validity of that action is not subject to be questioned otherwise than by an appellate court, and the act of bankruptcy was none the less complete by reason of the court’s error in appointing a receiver on the ground of the debtor’s insolvency. Beatty v. Andersen Coal Mining Co. (C. C. A.) 150 F. 293; In re Sedalia Farmers’ Co-Op. Co., supra; Blue Mountain Iron & Steel Co. v. Fortner (C. C. A.) 131 F. 57. It was contended that appellants were estopped from maintaining their involuntary bankruptcy petition by their participation in the receivership proceeding. The record does not indicate that the appellants participated in the receivership proceeding, otherwise than by complying, while the temporary receivership was in effect, with the temporary receiver’s requests that they furnish itemized and verified statements of their claims against the debtor. That compliance could not have misled any one into taking action in reliance on the belief that appellants would not seek a bankruptcy adjudication, in the event of an appointment of a receiver of the debtor’s property because of its insolvency, and did not estop the appellants from maintaining their involuntary bankruptcy petition. Simonson v. Sinsheimer (C. C. A.) 100 F. 426. The record does not indicate that after the occurrence of the act of bankruptcy relied on anything transpired which was at all inconsistent with the appellants seeking a bankruptcy adjudication based on that act of bankruptcy. We conclude that the court erred in dismissing the bankruptcy petition. The decree is reversed, and the cause is remanded for further proceedings not inconsistent with this opinion. Beversed.