George N. Sparling Coal Co. v. Colorado Pulp & Paper Co.

THE George N. Sparling Coal Company and other general creditors of the Colorado Pulp and Paper Company, hereinafter called the company or pulp company, an insolvent corporation in the hands of a receiver, prosecute this writ of error to review various orders and decrees entered by the district court in the receivership matter. Plaintiffs in error will hereafter be designated as "Sparling," to include them all. The defendants in error herein are the Colorado Pulp and Paper Company, George W. Beck, as receiver thereof, Charles B. Myers, Joseph Buchhalter, Moses Buchhalter, Morris H. Block, Maurice H. Levy, Edward I. Levy, International Trust Company, I. Rude, Max Bronstine, Aaron Bronstein, Harry C. Davis and Stanley T. Wallbank. This is a companion case to Myers v. Beck, 88 Colo. 457,299 Pac. 50; Myers v. Rude, 88 Colo. 459,299 Pac. 50, and Rossi v. Colorado Pulp and Paper Co., 88 Colo. 461,299 Pac. 19. The present case (Sparling's), and the three others mentioned, all arise out of one suit in the district court of Adams county, the receivership matter, numbered and entitled, "No. 2367, Charles B. Myers, plaintiff v. Colorado Pulp and Paper Co., et al., *Page 526 defendants." The four causes in this court have been consecutively prosecuted to review orders and decrees of the lower court. The circumstances under which a multiplicity of writs of errors have been sued out to review proceedings in one suit, are explained in our opinion inRossi v. Pulp Company, supra. The four causes in this court overlap, and taken as a whole, contain repetitious assignments of error. We have consolidated them for final determination and they are all decided on this day. Our main statement of facts is contained in the Rossi case, and our opinion in each of the several causes applies to all of them. They should be read together. In reaching our conclusions we have made free use of the records and briefs filed under the four writs of error. [1] 1. Our rule 35 reads: "Counsel will be confined to a discussion of the errors stated, but the court may, in its discretion, notice any other error appearing of record." We have employed this rule in the present instance, for reasons that must be apparent from a reading of the Rossi opinion. [2] 2. In McClelland v. Merchants Miners Nat.Bank, 77 Colo. 302, 308, 236 Pac. 774, we said: "Whether the liquidation of the affairs of the bank be voluntary or involuntary or whether it proceeds under the authority given to continue the bank in existence in order to close up its affairs, it is necessarily implied that the respective rights, not only of the creditors and debtors of the bank, but of the stockholders, are to be determined as of the time when it commences." In the instant case, the controlling date is May 16, 1927, when the receiver was appointed and took charge. [3] 3. As said in Clark on Receivers, (1st Ed.) page 742, paragraph 678, "Creditors of a receivership whose claims had been proved and allowed under a decree have a right to be heard in that court upon any actions of the court or the receiver, by which they might claim to be aggrieved." Our opinion in the Rossi case shows that there were *Page 527 urgent reasons why the Sparling petition in intervention, filed January 16, 1928, should have been allowed, but since we have held the Myers-Rude stipulation to be void as against the rights of general creditors, and have determined other matters in such petition in Sparling's favor, we hope that this has overcome many, if not all, of the difficulties of general creditors. They will be allowed to reframe their petition, if they so desire, to meet the present situation. [4] 4. On December 3, 1927, the claims of Sparling and other general creditors were allowed and judgments entered thereon in this proceeding. These claims amount approximately to the sum of $50,000. On November 26, 1928, plaintiffs in error in the present Sparling case, entered into a stipulation with the receiver, wherein it was agreed on certain conditions, that such creditors would accept sixty-five per cent of the face value of their claims in full settlement. On December 20, 1928, the court approved the stipulation, which was to effect that $10,000 should be paid immediately, and the balance in installments as rapidly as possible. The $10,000 was paid, pro rata among such creditors, but no more. At the time the stipulation was made, there was an upset price of $300,000 fixed by the court on the property. Instead of paying the creditors, the upset price was later removed, the property deteriorated and depreciated in value, Beck's liberal compensation and other receivership expenses continued, and about eighteen months after the stipulation was made, the pulp company real estate was struck off and attempted to be sold to two bondholders for $228,000, with their bonds as the purchase price. On account of this, the creditors were not paid any further sum beyond the $10,000, amounting to twenty per cent of their claims. Nevertheless, the district court held them to their agreement to pro rate on future dividends on a sixty-five per cent basis, as against one hundred per cent on other general claims, including the deficiency judgment for $24,242 in favor of Rude and *Page 528 Bronstine. This was serious error. The promise of the general creditors to accept sixty-five per cent carried with it a promise on the part of the receiver, express or implied, to pay it, and that it should be paid within a reasonable time. Instead of receiving it, they have been compelled to litigate with the receiver not only as to this matter, but in many other things, on account of unlawful encroachments on the general fund, which is the general creditors' only source of payment. Such claims will be restored to a basis of one hundred per cent, with legal interest from the date of rendition of judgments thereon. 5. Sparling assigns error to the entry of the deficiency judgment in the sum of $24,242, in favor of I. Rude and Max Bronstine, purchasers at the attempted sale of all corporate property of the pulp company. Since we have directed that the sale be set aside, the deficiency judgment will fall with it, and it is unnecessary to discuss other arguments concerning it. 6. Sparling's eleventh assignment of error is that the court erred in overruling objections made to the several reports of the receiver. It is discussed in connection with other assignments. As we said in the 27th paragraph of our opinion in the Rossi case, "There have been so many individual items of unlawful disbursement that it is impossible for us to take them all up seriatim." We have therefore resorted to general classifications, which is amply sufficient for all present purposes. In paragraph 39 of the Rossi opinion will be found a general clause reversing orders, judgments and decrees inconsistent with this opinion, whether specifically mentioned or not. This is intended to give the district court a wide latitude, to correct all errors that have been made, whether as to unlawful preferences or otherwise. Complaints may be presented to the district court by any interested party, in such manner as the court may direct. This is the only way that an affair of this magnitude can be terminated, and justice be done to all concerned. *Page 529 [5] 7. We here refer to the summary of fees and allowances to the receiver and his attorneys, as follows: "George W. Beck as Receiver $ 5,500.00 George W. Beck as General Manager 12,500.00 George W. Beck, Receiver, additional allowance 2,000.00 ----------- Total $20,000.00 Receiver's Attorneys: Charles Ginsberg $7,200.00 Clifford J. Gobble 500.00 John S. Stidger 1,500.00 John S. Stidger 1,500.00 --------- Total 10,700.00 ---------- Grand Total $30,700.00" A comparison of the above with the balance of about $40,000 and interest due general creditors, does not need much comment. At this time we shall pass on only the one item of $2,000 additional allowance paid Beck as receiver. As shown by our statement of facts in the Rossi case, on January 26, 1927, Clifford J. Gobble, an attorney at law, practicing in Denver, and who is mentioned above as having been one of the receiver's attorneys, mailed a letter to the clerk of the district court at Brighton, Adams county. This letter is as follows: "July 26, 1927. "Geo. M. Griffin, Clerk of the District Court, Brighton, Colorado. "Dear Sir: "Enclosed herewith please find the following papers: Petition of Receiver and Order of the Court to Repair Roof of Plant. Order allowing Compensation for Receiver. *Page 530 Order for Receiver to Defend Bankruptcy Proceedings. "Please file the papers in case No. 2367, Charles B. Myers vs. Colorado Pulp and Paper Company. Very truly yours, (Signed) Clifford J. Gobble." The "Order allowing Compensation for Receiver," mentioned in the letter, has reference to the $2,000 in question. The papers mentioned in the letter reached the clerk of the district court and were filed by him on July 27, 1927. The original letter is contained in the record and also the envelope in which it was enclosed. The envelope is post marked "Denver, July 26," and a photostatic copy of the order is enclosed, which shows an alteration in the date. It is claimed that the order for additional fees was made on July 26th, but that the date was changed to July 20th, so as to antedate the first petition in bankruptcy filed on July 23, 1927, and thereby escape the jurisdiction of the bankruptcy court. All surrounding circumstances bear out this conclusion. Another order, which authorizes the defense of the bankruptcy proceedings, is enclosed with the letter, is dated July 26th, and of course presupposes knowledge of such proceedings. The orders indicate that they were prepared at the same time, except for the mutilated date on the order allowing Beck $2,000 additional compensation. It will be set aside and Beck is ordered to refund the same. We do this with less hesitancy because we feel that he has been grossly overpaid. As to further refunds, if any, to be made by him on account of fees or compensations in any capacity, and also as to the fees paid to various attorneys, we believe, in view of our expressions of disapproval of the conduct of this matter from beginning to end, that counsel should be given a further opportunity to present their views on petition for rehearing. The judgment is reversed and the cause remanded, *Page 531 with directions for further proceedings not inconsistent with thus opinion. Costs to be assessed as directed inRossi v. Pulp Company. MR. JUSTICE BUTLER not participating. On Rehearing.