Petition — Butner v. United States
Supreme Court brief1979
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Supreme Court, U. S - \
FILED
APR 4 1078 }
IN THE | ;
MICHAEL RODAK, JR., CLERK
SUPREME COURT OF THE UNITED STATES" ———
APRIL TERM, 1978
No gyve14iin
William E. Butner, Petitioner,
v.
United States of America, etal., Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
William E. Butner
Post Office Box 2323
Hickory, North Carolina 28601
Attorney for Petitioner
J. Richardson Rudisill, Jr.
J. Steven Brackett
Rudisill & Brackett
Post Office Box 3506
Hickory, North Carolina 28601
INDEX
Page
RTM ws od bak wa ed cb wd 2
i 2
Questions Presented .........,..... 3
Constitutional Provisions, Statutes and
Rules Involved. ............. see |
Statement of the Case ..........,.... 7
Reasons for Granting Review on Certiorari ..1]
I. Certiorari should be granted to
resolve a split of authority among
the United States Circuit Courts of
Appeals which split is contrary to
the provisions of the Constitution
of the United States............ ll
Ii. In a Bankruptcy situation the
mortgageholder should be allowed
to satisfy his claim from the rents
of the encumbered property with-
out having to make preliminary
attempts to obtain possession of
ves nr pe EERE ET OO eee ee 13
lil. In holding that actions by the
Petitioner during a Chapter XI pro-
ceeding to establish his right to the .
rental income from the property on
which he held a mortgage were in-
sufficient to establish that right in
the ensuing Straight bankruptcy
IES TT
ie & oe
<
Conclusion
proceeding because the Chapter
XI and straight bankruptcy pro-
ceedings are not connected, the
United States Court of Appeals
for the Fourth Circuit committed
error in that it misapprehended
the nature of the two proceedings
and ignored an order by the Bank-
ruptcy Judge which would support
a carryover between the two pro-
ceedings here. Certiorari should
be granted so that the Court can
articulate the nature of the relation-
ship, ifany, between a Chapter XI
proceeding and a straight bank-
ruptcy. In the alternative, the
Fourth Circuit Court of Appeals
erred in holding that actions taken
before bankruptcy did not establish
the Petitioner's right to the rents ’
and certiorari should be granted
to correct the Court's interpreta-
tion of the Federal case law on this
_ SEPALS Loe Pa eee
IV. The Fourth Circuit Court of
Appeals in its decision so far de-
parted from the accepted and usual
course of judicial proceedings as
to call for an exercise of the Supreme
Court's power of supervision under
U.S. Sup. Ct. Rule 19(1)(b), 28
POP 85 44 6 6 oe os eee bese
li
es © FT SBC aCe eee Ghd & w& we
APPENDIX
Page
Order of the Bankruptcy Court ....... 2a-20a
Memorandum and Order of the U. S. District
Court for the Western District of North
Carolina, Statesville Division ..... . . 21la-30a
Opinion of the United States Court of
Appeals for the Fourth Circuit... ... . 3la-42a
Order Denying Petition for Rehearing. ... 43a
Order Denying Stay of Mandate .....,.. 44a
iii
CITATIONS
Page
Cases
Central States Life Ins. Co. v. Carlson,
98 F.2d 102 (10th Cir. CGM epee 20
First Savings Bank v. Stuppi, 2 F.2d 822
WPS I gk 6b 4s ss tc es ce ee 20
Gregg v. Williamson, 246N.C. 356, 98 S.E.
ee SOON sb bw bie + Wee bk) be im 17
In re Hotel Saint James Co., 65 F.2d 82
OO ke eek oe welds. l2
In re Pittsburg Duquesne Development Co.,
482 F.2d 243 (3d Cir. ee 12
In re Wakey, 50 F.2d 869 (7th Cir. 1921) .. 12
Mortgage Loan Co. v. Livingston, 45 F.2d
oe) eee 12, 18, 20
New Orleans Compress, Inc. v. Katz,
185 La. 723, 170 So. 244 ee oe om. 20
Pollack v. Sampsell, 174 F.2d 415 (9th
DPR eee dea. Jol ke. 12
Tower Grove Bank & Trust Co. Vv.
Weinstein, 119 F.2d 120 (8th Cir. 1941). . .12, 20
Constitutional Provisions, Statutes and Rules
U.S.C.A. Const. Art. 1§8........., 4, ll
cod vo eek. eee ee 4,21
so destheertianuncth utes... ae 4, 21
i 7, 21
Sete ae wall
Rules Bankr. Proc, Rule 201(a)..... . _ 5, 18 | IN THE
Rules Bankr. Proc. Rule 601(e), 11U.S.c. 6, 19 SUPREME COURT OF THE UNITED STATES
Rules Bankr. Proc. Rule 701, 11U.S.c. »« 6, 19
U.S. Sup. Ct. Rule 19(1)(b), 28 U.S.c. o- 6 29 APRIL TERM, 1978
No.
Other Authority IN THE MATTER OF:
Golden Enterprises, Inc., Bankrupt.
4A Collier on Bankruptcy (14th ed, )
v70. 16 (1008). 5 ss oc 12
» 17, 20 Golden Enterprises, Inc., and William E.
Butner, Petitioners,
v.
United States of America, Respondent.
and
IN THE MATTER OF:
Golden Enterprises, Inc.., Bankrupt.
Joe Cagle, Trustee in Bankruptcy for Golden
Enterprises, Inc.; Attorneys for the Creditors'
Committee; James M. Gaither, Jr., Attorney
for Bankrupt; Golden Enterprises, Inc., Bank-
rupt; William J. Lawing, C.P.A., and Charles
B. Camp, Respondents,
Vv.
William E. Butner, Petitioner.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
: FOR THE FOURTH CIRCUIT
entered in the above entitled cases on December 8,
1977, petition for rehearing denied on January 6, 1978.
The decision reversed the judgment of the United States
District Court for the Western District of North Carolina
chargeable against these rents.
OPINIONS BELOW
Petitioner to be an unsecured creditor with respect to
the rents derived from the encumbered Property dur-
ing bankruptcy. The order of the Bankruptcy Court
United States Court of Appeals for the Fourth Circuit,
reversing the judgment of the District Court (Appen-
dix pp. 3la-43a) is not officially reported on this date.
JURISDICTION
The judgment of the Court of Appeals for the
Fourth Circuit was made and entered on December 8,
1977, and a copy thereof is - Ppended to this Petition
in the Appendix at Pp. 3la-43a. The petition of
William E. Butner for a rehearing was denied on Janu-
ary 6, 1978, (Appendix p. 44a) The motion of William
E. Butner for a Stay of mandate pending the filing of
2
a petition for Writ of Certiorari was denied on January
16, 1978. (Appendix p. 45a) The jurisdiction of this
Court is invoked under 11 U.S.C. § 47(c) and 28
U.S.C. §1254(1).
QUESTIONS PRESENTED
1. The first question presented is whether the
difference in administration of the F ederal Bankruptcy
law in the »arious circuits on the question of the abili-
ty of a secured creditor to reach the rents from the en-
cumbered property to Satisfy his claim, violates the
Constitution of the United States.
2. The second question presented is whether,
where real property encumbered by a mortgage be-
comes involved ina bankruptcy proceeding, the mort-
gage holder may reach the rental income from the en-
cumbered property to Satisfy his claim without making
any preliminary attempts to take possession of the prop-
erty.
3. The third question presented is whether the
Court below erred in holding that, where a corporation
attempts an arrangement under Chapter XI of the United
States Code and the arrangement is unsuccessful thus
forcing the corporation into a Straight bankruptcy pro-
ceeding, actions taken under the Chapter XI proceed-
ing by a mortgageholder to establish his right to the
rents of the mortgaged property did not establish his
claim to the rents for purposes of the bankruptcy pro-
ceeding.
4. The fourth question is whether the Fourth
Circuit Court of Appeals so far departed from the ac-
cepted and usual course of judicial proceedings as to
call for an exercise of the United States Supreme
Court's power of supervision under U. S. Sup. Ct.
3
the schedules and statement of affairs, as provided by
paragraph (1) of section 724 of this title, are not duly
filed, or if an arrangement is not proposed in the man-
over into an ensuing straight bankruptcy while rein-
Stating the judgment of the United States Bankruptcy
Court which gave priority over the second mortgage-
holder's claim to the Claims of the respondents herein
for fees and expenses generated during the Chapter
XI proceeding.
CONSTITUTIONAL PROVISIONS,
STATUTES AND RULES INVOLVED
U.S.C.A. Const. Art. 1§ 8
The Congress shal] have Power ***
Clause 4. To establish an uniform Rule of
Naturalization, and uniform laws on the subject of
Bankruptcies throughout the United States:
11U.S.C. §752
Where not inconsistent with the provisions of
this chapter, the rights, duties, and liabilities of
creditors and of all other persons with respect to
the property of the debtor shall be the same, where
a petition is filed under Section 721 of this title anda
decree of adjudication has not been entered in the
pending bankruptcy Proceeding, as if a decree of ad-
judication had been entered in such bankruptcy pro-
ceeding at the time the petition under this chapter was
filed, or, where a petition is filed under section 722
cation had. been entered at the time the petition under
this chapter was filed,
11 U.S.C. 39776(2)
If the statement of the executory contracts and
4
ner and within the time fixed by the court, or if an
arrangement is withdrawn or abandoned prior to its
acceptance, or is not accepted at the meeting of credi-
tors or within such further time as the court may fix,
or if the money or other consideration required to be
deposited is not deposited or the application for con-
firmation is not filed within the time fixed by the court,
or if confirmation of the arrangement is refused, the
court shall--
***
(2) where the petition was filed under section
722 of this title, enter an order, upon hearing after
notice to the debtor, the creditors, and such other
persons as the court may direct, either adjudging the
debtor 2 bankrupt and directing that bankruptcy be
proceeded with pursuant to the provisions of this title
or dismissing the proceeding under this chapter,
whichever in the opinion of the court may be in the in-
terest of the creditors: Provided, however, That an
order adjudging the debtor a bankrupt may be entered
without such hearing upon the debtor's consent.
Rules Bankr. Proc. Rule 201(a)
Purposes and Term of Receivership. Subject
to the provisions of this rule, the court may appoint
a receiver when necessary in the best interest of the
estate (1) to take charge of the iene of a bank-
rupt; (2) to conduct the business of the bankrupt; or
(3) to afford representation to the estate in an action,
adversary proceeding, or contested matter when no
trustee has qualified or the interest of the trustee may
be adverse to that of the estate. Such appointment
shall be terminated when the trustee qualifies or there
is no further need for a receiver, and the authoriza-
tion to conduct the business of the bankrupt after
5
adjudication shall continue only for such time as may | (b) Where a court we ene has rendered a de
: e “
cision in conflict with the decision of another court of
appeals on the same matter; or has decided an impor-
tant state or territorial question in a way in conflict
with applicable state or territorial law; or has decided
_ an important question of federal law which has not
. been, but should be, settled by this court; or has de-
cided a federal questi a in a way in conflict with ap-
plicable decisions of this court; or has so far departed
from the accepted and usual course of judicial pro-
ceedings, or so far sanctioned such a departure by a
lower court, as to call for an exercise of this court's
power of supervision.
Rules Bankr. Proc. Rule 701, 11U.S.c.
— The rules of this Part VII govern any proceed-
ing inStituted by a Party before a bankruptcy judge to
Q) recover money or Property, other than a Proceed-
ing under Rule 220 or Rule 604, (2) determine the
validity, Priority, or extent of a lien or other interest
in property, (3) to sell Property free of a lien or other
interest for which the holder can be compelled to take
@ money satisfaction, (4) object to or revoke a dis-
charge, (5) obtain an injunction, (6) obtain relief from
a Stay as provided in Rule 401 or 601, or (7) determine
the dischargeability ofadebt. Sucha Proceeding shal]
be known as an adversary Proceeding,
11U.S.C. §778
(a) Upon the entry of an order directing that
bankruptcy be proceeded with--
OOK
Rules Bankr. Proc. Rule 60l(e), 11U.S.c.
Ce) Availability of Other Relief, Nothing in this
rule precludes the issuance of, or relie: from
stay, restraining order » OF injunction when otherwise
authorized,
Advisory Committee's Note
KK
(2) in the case of a petition filed under section
722 of this title, the proceeding shall be conducted, so
far as possible, in the same manner and with like ef-
fect os if a voluntary petition for adjudication in bank-
ruptcy had been filed and a decree of adjudication had
been entered on the day when the petition under this
chapter was filed; and the trustee nominated by credi-
tors under this chapter shall be appointed by the
court, or, if not so nominated or if the trustee so
nominated fails to qualify within five days after notice
to him of the entry of such order, a trustee shall be
appointed by the court;
Subdivision (e), The stay provided by this
rule is in no way a limitation on the discretion and
power of the court of bankruptcy under §2a(15) of
the Act [section 11(a)(15) of this title] to grant or
deny or modify relief in the nature of an injunction.
OK OK
— _
es BOs Oe es te ee ee eee ee
granted only where there are Special and important STATEMENT OF THE CASE
reasons therefor, The following, while neither con-
trolling nor fully measuring the court's discretion, William E. Butner, Robert L. McKaughn, Jr.,
indicate the character of reasons which will be con- and Jack Sipe Construction Company held a second
sidered: mortgage in the amount of $360,000.00 on real property
[a ect. ow
6 7
owned by Golden Enterprises, Inc., a North Carolina
Corporation. Since that time Robert L. McKaughn,
Jr., and Jack Sipe Construction Company have as-
signed all of their right, title and interest in the in-
debtedness and deeds of trust to William E. Butner,
the Petitioner herein, thus making him the sole
second mortgageholder.
On May 4, 1973, Golden Enterprises, Inc.,
filed a petition in bankruptcy for an arrangement
under Chapter XI of the Bankruptcy Act, 11 U.S.C.
Section 701, et seq. While the Chapter XI proceeding
was pending, on April 7, 1974, upon motion by
William E. Butner, Robert L. McKaughn, Jr., and
Jack Sipe Construction Company to secure the debt
to them in the amount of $360,000.00, and upon their
agreement that they would not attempt to foreclose
their deed of trust without Court approval, the
Honorable Joseph R. Cruciani, Bankruptcy Judge,
ordered that the note and deed of trust to then: from
Golden Enterprises, Inc., should be in the original
amount of $360,000.00, reduced the rate of interest
from twelve percent to ten percent per annum and
further ordered "That the holders of the ncte or any
assignee thereof shall not attempt to file a petition to
reclaim or to foreclose except upon motion to this
Court setting forth the reasons therefor."
On April 17, 1974, the first and second mort-
gageholders sought the appointment of an agent to
collect the rental income from Golden Enterprises’
property. On April 18, 1974, the Honorable Joseph
R. Cruciani, Bankruptcy Judge, appointed Simon
Joseph Golden as agent "to receive all income derived
from debtor's real estate" and to apply that income to
the payment of interest and principal on the second
mortgage as well as to other enumerated debits of the
corporation.
+ tee sed ars!
ee ee
Nee icity ae i a oe ke
A plan of arrangement was never confirmed,
and on February 14, 1975, Golden Enterprises, Inc.,
was adjudged a bankrupt, and the Honorable Joseph
R. Cruciani appointed Joe N. Cagle as Trustee to
take charge of the real estate and "to collect and re-
ceive all rents, issues, income and profits . . . due
or to become due to the within estate, and to hold and
retain all monies thus received to the end that tne
same may be applied under this or different or further
orders of this Court... ."
The first mortgage payments had been kept
current during the Chapter XI proceeding, but in
February, 1975, the Trustee ceased making payments
on the first mortgages, allegedly pursuant to an oral
order issuing from someone in the office of the Bank-
ruptcy Judge, although there is no direct evidence
that any such further order was entered.
There now remains in the Trustee's hands ap-
proximately $162,971.32, all of which is rental income
from the real property since the personal property was
disposed of during the Chapter XI proceeding and its
proceeds paid out to some creditors.
During the Bankruptcy proceeding, the second
mortgageholder orally sought abandonment of the prop-
erty to him. The Bankruptcy Judge gave repeated
oral assurances to the second mortgageholder that, if,
when the property was sold, the sale did not bring
enough money to pay the first and second mortgage
debts, he would not confirm the sale but would aban-
don the property. In the meantime, the Judge refused
to abandon the property. At the first meeting of the
creditors, the second morigageholder sought abandon-
ment, and the Judge indicated that he would abandon
the property if the sale proceeds were insufficient to
pay the mortgage debts and indicated in addition that
9
he was refusing to abandon the real estate because of
his concern over how the costs of administration would
be paid.
The real estate was sold at public auction on
July 28, 1975, and the sale of two of the tracts was
confirmed. William E. Butner appealed to the United
States District Court for the Western District of North
Carolina, Statesville Division.
After hearing the appeal, the Honorable Woodrow
W. Jones, Judge, on November 7, 1975, ordered the
Trustee to resell the real estate at public auction free
and clear of all liens and encumbrances except the
first deeds of trust thereon. Judge Jones further
ordered that the second mortgageholder be allowed to
use the outstanding principal balance of his Deed of
Trust to bid at the bankruptcy resale.
At the resale, November 12, 1975, William E.
Butner became the last and highest bidder for the prop-
erty, with a bid of $174,000.00, thus leaving a balance
due on his note of $186,000.00. However, at the final
meeting of creditors to determine the distribution of
the $162,971.32 in rents held by the Trustee, the
Honorable Marvin R. Wooten, Bankruptcy Judge, de-
clared the second mortgageholder a general creditor
with respect to the balance due on his note while
awarding, almost without exception, all claims arising
during the Chapter XI proceeding as priority claims.
William E. Butner appealed this order to the
United States District Court for the Western District of
North Carolina, Statesville Division, where the Honor-
able Woodrow W. Jones, Chief Judge, reversed and
vacated the Bankruptcy Judge's finding of William E.
Butner's unsecured status as to the rents derived
from the encumbered property. From this order the
10
United States and the Trustee, et al. appealed to the
United States Court of Appeals for the Fourth Circuit
where the United States' appeal on its tax claim was
consolidated with the appeal of the Trustee, et al.
for briefing and argument. The appeal was heard on
October 4, 1977, and on December 8, 1977, the Fourth
Circuit Court of Appeais, Senior Circuit Judge Bryan
dissenting, reversed the judgment of the United States
District Court and remanded the case for compliance
with the final order of Judge Wooten. William E.
Butner's petition for a rehearing was denied on Janu-
avy 6, 1978, and his motion for a stay of mandate pend-
ing petition for writ of certiorari to the United States
Supreme Court was denied on January 16, 1978.
l,
Certiorari should be granted to resolve a_ split of
authority among the United States Circuit Courts of
Appeals which split is contrary to the provisions
of the Constitution of the United States.
Article I, Section 8, Clause 4 of the United
States Constitution empowers Congress "to establish...
uniform Laws on the subject of Bankruptcies through-
out the United States." Congress has established such
a uniform law. If the Constitution orders the estab-
lishment of a uniform law, then it follows that the law
must also be uniformly applied throughout the United
States. At present, however, the law is not being
consistently applied on the question of the right of a
secured creditor to reach the rents of the encumbered
property to satisfy his claims.
There is a split of authority among the circuits
as to whether a secured creditor may satisfy his claim
in bankruptcy out cf the accrued rents of the encum-
bered property after the proceeds of the foreclosure
ll
sale of that property have been exhausted. The Third
and Seventh Circuits allow a secured creditor to reach
the rental income. In re Pittsburg Duquesne Devel-
opment Co., 482 F.2d 243, 246 (3d Cir. 1973); In re
Wakey, 50 F.2d 869 (7th Cir. 1921). The Eighth and
Ninth Circuits hold that the mortgagee has no right to
the rents unless he has taken possession of the prop-
erty, and, since a mortgagee cannot take possession
of the property if the bankruptcy court has assumed
control of it, in cases of bankruptcy, these circuits
substitute other actions by the mortgagee in lieu of
taking possession to secure his rights in the rental
income. Tower Grove Bank & Trust Co. v. Weinstein,
119F.2d 120 (8th Cir. 1941); In re Hotel Saint James
Co., 65 F.2d 82 (9th Cir. 1933). These substituted
acts encompass petitioning tor a sequestration order,
getting a receiver appointed to collect the rents or
obtaining the court's consent to a foreclosure.
Pollack v. Sampsell, 174 F.2d 415 (9th Cir. 1949);
Mortgage Loan Co. v. Livingston, 45 F.2d 28 (8th
Cir. 1930); 4A Collier on Bankruptcy (14th ed.) 970.16
at 150-163 (1976).
The fact that courts sitting in different circuits
can reach completely contradictory results on similar
fact situations clearly shows that the policy behind the
Constitutional provision on uniformity of bankruptcy
laws is being violated. The writers of the Constitution
considered this area so vital that they proposed a com-
plete, strictly Federal remedy to assure fair treatment
to all involved in bankruptcy. Given their emphasis
on uniformity, the anomalies contained in the property
law of the individual states should not be allowed to
create differences in application of the bankruptcy
laws.
This question is of great importance today be-
cause of the new wave of bankruptcy proceedings re-
12
vitae dada delle ar) vals teh: Psion cet
vreweatel jalan!
4
*
a
.
;
sulting from the economic dislocations of the past decade.
Previously, the annual number of bankruptcies nation-
wide had been relatively small and the unfairness of
unequal application of the law less damaging to the
population in general. However, if the present split
between the Circuits is not resolved, the unfairness
of this unequal treatment will now affect a much larger
segment of the population since the number of bankrupt-
cies has increased.
ll,
In_a Bankruptcy situation the mortgageholder
should be allowed to satisfy his claim from the rents
of the encumbered property without having to make
preliminary attempts to obtain possession of said
property.
The Fourth Circuit in its opinion in the instant
case adopted the rule of the Eighth and Ninth Circuits
and held that Petitioner had not performed sufficient
acts to establish a claim to the rents from the encum-
bered property. If the Court rules that the split among
Circuits must be reconciled, it is submitted that the
rule of the Third and Seventh Circuit Courts of Appeals
on this question is the more logical in the context ot
bankruptcy.
The Fourth Circuit rule furthers the games
playing approach to litigation which the courts, the
Congress and the legislatures of the states have been
attempting to do away with by revision of the rules of
civil procedure and other statutes with an emphasis
on the consideration of substance over form and on the
idea that a worthy claim should not be defeated by a
technical rule in a situation where the rule has no ra-
tional application. Under the rule adopted here, a
creditor who has not read the fine print about the split
13
between the circuits on this issue or whose lawyer is
not highly specialized in bankruptcy law, is penalized
for tailing to do something which he would not have to
do if the property in which he holds a security interest
were located in another state. Thus differences in state
rules cause unnecessary inequities in a purely Federal
proceeding.
This rule is only applicable in cases where the
land has depreciated in value to the point that its sale
would not bring enough to cover the mortgage debt.
The idea behind requiring a mortgageholder to take
possession of the encumbered property before he could
reach its rents to satisfy his claim is that, if the value
of the land is depreciating because of the debtor's mis-
management, the taking of possession by the creditor
would alleviate the problem. Thus, the deficiency
would not continue to grow and some of the rents might
be freed for application to other debts.
The cdebtor-mismanagement idea has no validity
in Bankruptcy where the property is under the control
and supervision of the Court. A possible justification
tor applying this rule in a Bankruptcy context is that,
in a situation where there are many claims and few
assets, it gives an indication of the diligence with
which a creditor is pursuing his claim and rewards
the one who pursues his claim the most vigorously.
This application of the rule is unfair. By making the
effort and incurring extra expense to obtain security
for his debt, a secured creditor has already indicated
a diligence which is not shown by the unsecured credi-
tors. Of course there must be enough action on the
part of the creditor to make it clear that he has a claim
and is not waiving it, but when the newly-adopted
Fourth Circuit rule is applied, it turns the Bankruptcy
proceeding into a game with all the unsecured creditors
waiting to pounce on the assets if a secured creditor
14
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fails to satisfy every technical requirement along the
way and ignores the fact that his original efforts to
secure his debt at its inception should entitle him to
some priority.
This rule discounts the importance of the income-
producing capacity of the property in connection with
the mortgage transaction. The ability to produce in-
come is one variable in the determination of the value
of a piece of property prior to taking a mortgage on it.
If the property could not be rented or if no business
could be operated thereon, the amount for which the
property could be mortgaged would be less. In making
a loan and taking a mortgage on real estate, the lender
looks in great measure to the income being produced
by the property to see if the mortgagor can make the
mortgage payments from that income. The ordinary
lender does not enter into a mortgage transaction with
the idea that the mortgagor will be unable to repay the
loan, thus making foreclosure necessary, since fore-
closure is an extreme and expensive way of obtaining
possession of a piece of property to satisfy a debt.
Given that the income-producing ability of a piece of
real estate is a prime consideration in the acceptance
of a mortgage on that property as security for a loan,
it seems only fair that a secured party be able to sat-
isfy a claim in bankruptcy from accrued rents attri-
butable to that property once the proceeds of the fore-
closure sale of the property have been exhausted.
The rule adopted by the Eighth and Ninth Cir-
cuits, and now by the Fourth Circuit, assumes that a
secured creditor is irrational. No rational person
would purposely decide not to seek full repayment of
a secured debt when he learns that his debtor is in
such financial difficulty that he will be unable to pay
all of his debts. By adopting this rule the Circuits
are trying to penalize a secured creditor in cases where
15
his security, through no fault of his own, has declined
drastically in value. The decline in value of the secu-
rity does not diminish the amount of money that the
secured creditor loaned, and he should not be penal-
ized for value fluctuations where the rents from the
property have been collected and are thus available
to satisfy his claim.
Il.
In_ holding that actions by the Petitioner dur-
ing a Chapter Al _proceeding to establish his right
to the rental income from the property on which he
held a mortgage were insufficient to establish that
right in the ensuing straight bankruptcy proceeding
because the Chapter XI and Straight bankruptcy
proceedings are not connected, the United States
Court of Appeals for the Fourth Circuit committed
error in that it misapprehended the nature of the
two proceedings and ignored an order by the Bank-
ruptcy Judge which would support a carryover
between the two proceedings here. Certiorari should
be granted so that the Court can articulate the nature
of the relationship, if any, between a Chapter XI
proceeding and a Straight bankruptcy. In the al-
ternative, the Fourth Circuit Court of Appeals erred
in holding that actions taken before bankruptcy did
not establish the Petitioner's right to the rents, and
certiorari should be granted to correct the Court's
interpretation of the Federal case law on this point.
Even if the Eighth and Ninth Circuit rule dis-
cussed in II above was correct, the Fourth Circuit
Court of Appeals committed error in holding that the
second mortgageholder had not satisfied the require-
ments of that rule.
The Eighth and Ninth Circuits, and now the
16
Fourth Circuit, when determining if a secured credi-
tor has established his right to the rental income from
the encumbered property, consider the following four
factors: (1) the nature of the mortgage transaction
under applicable state law; (2) the terms of the mort-
gage itself; (3) the acts of the parties thereunder and
(4) whether equitable considerations as applied by
the federal bankruptcy court may alter the result. 4A
Collier on Bankruptcy ()4th ed.) §70.16 at 157 (1976).
(1). According to North Carolina law, even
after default, the mortgagor is entitled to the rents and
profits of the encumbered property until the mortgagee
takes possession of the property. After taking pos-
session the mortgagee is entitled to the rents and
profits. Gregg v. Williamson, 246N.C. 356, 98S.E.
2d 481 (1957).
(2). The terms of the mortgage itself do not
address this issue and thus provide no help in deter-
mining it.
(3). Here, before Golden Enterprises began the
Chapter XI proceeding, the second mortgage was not
in default so the mortgagees could not have taken pos-
session. At the time that the Bankruptcy Judge con-
firmed the amount of the second mortgageholders' claim
against Golden Enterprises, Inc., the second mortgage
was still current, so they could not have taken pos-
session of the property at that time. In his order,
the Bankruptcy Judge ordered also that the second
mortgagees not attempt to file a petition to reclaim or
to foreclose except upon motion to the Court. Thus,
after that time the second mortgageholders could not
take possession of the property without permission.
Since the property was under the control of the
Bankruptcy Court, Petitioner had to perform one of
17
the acts which have been held to substitute for taking
possession of the property where that is impossible.
He satisfied this requirement by obtaining the appoint-
ment of a receiver to collect the rents. Mortgage Loan
Co. v. Livingston, 45 F.2d 28 (8th Cir. 1930). The
tirst and second mortgageholders obtained the appoint-
ment of Simon Joseph Golden to collect and hold the
rents and to make payments on the mortgages. Under
the order of the Bankruptcy Judge, there was no other
course of action open to them.
At the time when the Chapter XI proceeding was
converted into a straight bankruptcy proceeding, the
Bankruptcy Judge appointed a Trustee and ordered
him to collect and hold all the rents so that they might
be applied "under this, or different, or further orders
of this Court (emphasis supplied)." Petitioner submits
that this order continued the effectiveness of the order
in the Chapter XI proceeding which commanded the
second mortgageholders not to attempt to reclaim or
foreclose the property. Therefore, Petitioner could
have done nothing more to establish his right to the
rents without risking being held in contempt of court.
It also continued the effect of the order appointing a
receiver so that ihe collected rents were held in part
for the same purposes as they were in Chapter XI.
In addition, Bankruptcy Rule 201(a) provides that,
once a Trustee has been appointed, a Receiver may
only be appointed "to afford representation to the estate
in an action, adversary proceeding, or contested mat-
ter when . . . the interest of the Trustee may be ad-
verse to that of the estate." This clearly does not apply
here because the mortgageholder would not have sought
appointment of a receiver to represent the estate and
because the Trustee's interests were not adverse to
those of the estate in this situation.
18
o al we
_ ae ee
ee eee
min Ae Ry eS Rs eee, EY abe te 5 ee ew Calne = 8 =
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The second mortgageholder was still under the
order of the Bankruptcy Judge not to attempt to re-
claim or foreclose on the property without permission
of the Court, and his oral motions for abandonment
were repeatedly denied. In addition he relied on as-
surances given by the Bankruptcy Judge in chambers
and indicated at the first meeting of creditors that, if
the property did not bring enough at the foreclosure
sale to cover the first and second mortgage debts, the
Judge would abandon the property to the second mort-
gageholders. Thus he could not file an adversary pro-
ceeding and did not think that such a proceeding was
necessary under the circumstances. This was not a
situation where Bankruptcy Rule 701 demands that an
adversary proceeding be filed. The only applicable
portion of the rule is subsection (6) "to obtain relief
from a stay as provided in Rule... 601... ."
Bankruptcy Rule 601(e) states, "Nothing in this rule
precludes the issuance of, or relief from, any stay... .
when otherwise authorized." The note of the advisory
committee, with respect to this subsection, explains
that "the stay provided by this rule is in no way a
limitation on the discretion and power of the court of
bankruptcy under §2a(15) of the Act to grant or deny
or modify relief in the nature of an injunction.”
Thus Petitioner's failure to file an adversary
proceeding did not bar him from claiming the rents
if his other actions were sufficient to establish a right
to the rents.
The Fourth Circuit Court of Appeals held that
Petitioner's acts were not sufticient to establish his
right to the rents because they were not performed
"during bankruptcy." (Appendix p. 36a) Petitioner
submits, that, if these acts were not performed "during
bankruptcy," he has established his right to the rents
because, if the Chapter XI proceeding is not considered
19
a part of the bankruptcy, then he obtained the appoint-
ment of a receiver prior to bankruptcy. According to
Collier on Bankruptcy, "If therefore, prior to bank-
ruptcy, the mortgagee has secured possession, com-
menced foreclosure proceedings, secured the appoint-
ment of a receiver for the property, or has in any
other manner acceptable under the mortgage and ap-
plicable state law sequestered or attached the rents
and profits, it is clear under the rule just stated that
the mortgagor's trustee has no rights as to such rents
and profits from the property when bankruptcy ensues
(emphasis supplied)." 4A Collier on Bankruptcy (14th
ed.) 970.16 at 159-161 (1976), citing as authority
Mortgage Loan Co. vy. Livingston, 45 F.2d 28 (8th
Cir. 1930); New Orleans Compress, Inc. v. Katz,
185 La. 723, 170 So. 244 (5th Cir. 1936); Central
States Life Ins. Co. v. Carlson, 98 F.2d 102 (10th
Cir, 1938); First Savings Bank v. Stuppi, 2 F.2d 822
(8th Cir. 1924),
In the alternative, Petitioner submits that the
Cuapter XI proceeding and the straight bankruptcy
proceeding are in fact part of the same bankruptcy so
that actions taken during the Chapter XI proceeding
are taken."during bankruptcy" for purposes of the rule
involved here.
"Once bankruptcy has begun, the mortgagee may,
if he has done nothing up to that time, take the follow-
ing steps to secure the rents and profits: (1) obtain
trom the bankruptcy court the appointment of a receiver
to collect the rents for the benefit of the mortgagee...."
4A Collier on Bankruptcy (14th ed.) $70.16 at 161
(1976), citing as authority Tower Grove Bank & Trust
Co, v. Weinstein, 119 F.2d 120 (8th Cir. 1941).
Chapter XI is only one portion of the larger
Bankruptcy title of the United States Code, 11 U.S.C.
20
re ales oe oe Ee re teabaly Le ieee ST RO we
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§l et seq., andis thus encompassed thereby. Rights,
duties and liabilities of creditors are the same in
Chapter XI proceedings as in straight bankruptcy pro-
ceedings. 11U.S.C. §752. If an arrangement under
Chapter XI is not confirmed, the court may adjudge
the debtor to be a bankrupt and direct that straight
bankruptcy be proceeded with pursuant to the pro-
visions of Title 11 of the United States Code. 11U.S.C.
§776(2). When a Chapter XI proceeding is converted
to straight bankruptcy, the proceeding is handled as
if the adjudication of bankruptcy was entered when
the Chapter XI petition was first filed. 11 U.S.C.
778(a)(2). Thus obviously Chapter XI proceedings
are on a continuum with straight bankruptcy and can
be considered as a part of "bankruptcy proceedings."
Here the same Bankruptcy Judge dealt with both
proceedings and the same debtors were involved in
both. Thus it cannot be argued that any party lacked
notice of the Petitioner's actions with respect to his
second mortgage during the Chapter XI proceeding.
There was no prejudicial surprise here to justify hold-
ing that the Chapter XI proceeding was not a part of
the bankruptcy for purposes of establishing Petition-
er's claim to the rents here.
(4). The Trustee et al. argued below that equi-
table considerations should bar Petitioner from reach-
ing the rents here because he sold one of the pieces of
property obtained at the Bankruptcy Resale for one
million dollars. The Court of Appeals for the Fourth
Circuit apparently relied on this argument to some ex-
tent in its decision below. (Appendix p. 37a) Peti-
tioner maintained and still maintains that the question
at issue was merely whether his actions had been suf-
ficient to establish the right to reach the rents to satis-
fy any deficiency and not what the amount of that de-
ficiency might be since the part of the order which
21
was originally appealed was that which declared him
an unsecured creditor with respect to the balance of
his claim. He also maintained, and still maintains, that
any profit made on the later sale is not relevant to the
determination of the deficiency owed. Petitioner was
not the sole bidder at the bankruptcy resale; thus the
final bid at the resale represents the actual value of
the property encumbered by a first mortgage which was
badly in arrears. Petitioner subsequently made pay-
ments on the first mortgage and eventually naid it off,
thus increasing the value. of the property by his own
efforts. At the same time, the value of the land in-
creased sharply because there was a warehouse on it
and there was a shortage of warehouse space in the
area. These intervening factors alone should account
for any profit made on the sale. However, even if the
deficiency owed him is reduced by the sale profits, he
will still be able to establish a deticiency in the amount
of at least $57,774.55 if he is adjudged to have estab-
lished a right to reach the rents in question.
The property in question was sold for one mil-
lion dollars. However, after he obtained possession
of the property, Petitioner made payments in the amount
of $839,774.55 on the outstanding first mortgage, which
was greatly in arrears. Through a lawsuit for recovery
of improper charges made on that mortgage and another
from the same lending institution, which suit was set-
tled in January, 1978, he recovered $5,000.00 attri-
butable to improper charges made on the loan on the
property which he sold. Thus he made a profit of no
more than $165,225.45 onthe sale. The original mort-
gage debt owed him was $360,000.00. It was reduced
to $190,000.00 by virtue of his $170,000.00 bid at the
bankruptcy resale. The loan carried interest at
twelve percent, but the Bankruptcy Judge had reduced
it to ten percent. During the Chapter XI proceeding,
there was no interest paid for at least one month. This
22
Bae
ilies ctinen ee ee ee ee ee a ee
non~payment caused Butner and the others to have a
receiver appointed. After the adjudication of bank-
ruptcy, ten monthly interest payments were missed
before Petition =r obtained title to the property. At ten
percent interest, this means that Petitioner did not
receive $33,000.00 in interest payments to which he
was entitled. Thus the unsatisfied amount of his debt
after the bankruptcy resale was $223,000.00. Simple
arithmetic shows that, without allowing anything for
expenses incurred ‘y the Petitioner in connection
with pursuing his claim in the Bankruptcy proceed-
ing, and without attributing any of the profit from the
sale of part of the land to Petitioner's own efforts and
a shift in market conditions, he is stil] owed at least
$57,774.55 on his second mortgage. Thus, it is sub-
mitted that no equitable considerations should bar his
claim to the rents.
IV .
The Fourth Circuit Court of Appeals in its
decision so far departed from the accepted and
usual course of judicial proceedings as to call for
an _ exercise of the Supreme Court's wer of super-
Vision under U.S. Sup. Ct. Rule 19(1)(b), 28
U.S.C.
There is an inescapable contradiction in the
opinion of the Fourth Circuit Court of Appeals here.
On the one hand they rule that a Chapter XI proceed-
ing is not a part of the Bankruptcy proceeding insofar
as Petitioner is concerned in that Petitioner's actions
during the Chapter XI proceeding will not carry over
to secure a claim to the rents in the Bankruptcy pro-
ceeding. On the other hand, in reinstating the Order
of Bankruptcy Judge Marvin R. Wooten (Appendix
pp. 2a-20a), they are ruling that, insofar as Respon-
dents are concerned, a Chapter XI proceeding is a
23
part of the Bankruptcy proceeding since that Order
allowed priority to claims arising out of the Chapter
AI proceeding. The order of Judge Wooten awarded
Trustee fees of $2,088.99, attorney fees and expenses
for the Trustee's attorney of $9,207.07, and a wage
claim of $600.00 all of which were properly attributable
to the Bankruptcy itself. It then awarded fees and ex-
penses of $ 44,249.52 ($39,623.00 of which was in-
curred during the Chapter XI proceeding) .> the
Debtor's attorney; fees and expenses of $4,725.00
($4,575.00 of which was incurred during the Chapter
XI proceeding) to J. Carroll Abernethy; $8,000.00
(all of which was incurred during the Chapter XI pro-
ceeding) to the attorneys for the Creditors’ Committee;
$4,137.25 in accountant's fees (all of which was in-
curred during the Chapter XI Proceeding); and
$26,451.77 to a contractor for installing a sprinkler
System in one of Golden Enterprises’ buildings dur-
ing the Chapter XI proceeding.
The nature of the relationship between Chapter
XI and straight bankruptcy cannot fluctuate depend-
ing on whose rights are involved. The same inter-
pretation of the relationship must be applied both to
the above claimants and to the Petitioner.
This contradiction in the opinion of the Fourth
Circuit Court of Appeals is obvious and cannot be re-
solved. Thus the United States Supreme Court should
grant certiorari, exercising its power of supervision
over the lower courts to remove this contradiction,
24
Se
bo tee
dare eelisoet beset Oo
Ey ei lt a as Salat ll ae sd tries da
CONCLUSION
The petition for a writ of certiorari should be
granted.
Respectfully submitted,
William E. Butner
Attorney for Petitioner
Post Office Box 2323
Hickory, North Carolina 28601
25
CERTIFICATE OF SERVICE
The undersigned hereby certifies that he has
this day served a copy of the foregoing Petition for
Certiorari upon counsel for the Appellants by deposit-
ing copies of the same in the United States mail, post-
age prepaid, addressed:
J. Carroll Abernethy, Jr., Esquire
Post Office Box 1492
Hickory, North Carolina 28601
Gilbert E. Andrews, Chief
Myron C. Baum, Acting Assistant
Attorney General
Tax Division
Department of Justice
yw Washington, D. C. 20530 (sent Air Mail)
Joe N. Cagle, Esquire
Fidelity Federal Building
Post Office Box 2050
Hickory, North Carolina 28601
Langdon M. Cooper
Trustee for Charles B. Camp
313 South Street
Gastonia, North Carolina 28052
Joseph H. Frier, Jr., Esquire
Goldman, Frier & Altesman
Seven Dey Street
New York, New York 10017 (sent Air Mail)
James M. Gaither, Jr., Esquire
N.C.N.B. Building
Post Office Box 1050
Hickory, North Carolina 28601
26
“A
i
4
3
William J. Lawing
Lawing, Rowe & Company
Post Office Box 2675
Hickory, North Carolina 2860]
Arthur 1. Winard, Esquire
475 Fifth Avenue
New York, New York 10017 (sent Air Mail)
Hon. Michael Rodak, Jr.
Clerk of Supreme Court of the United States
U. S. Supreme Court Building
One First Street, N. E,
Washington, D.C. 20543 (sent Air Maii)
Solicitor General
Department of Justice
Washington, D. C. 20530 (sent Air Mail)
This the 2 d
of Ina vel, , 1978.
?,. +
illiam E. Butner
27
IN THE
SUPREME COURT OF THE UNITED STATES
APRIL TERM, 1978
No.
IN THE MATTER OF:
Golden Enterprises, Inc., Bankrupt.
Golden Enterprises, Inc. , and William E.
Butner, Appellees,
v.
United States of America, Appellant,
and
IN THE MATTER OF:
Golden Enterprises, Inc, , Bankrupt.
Joe Cagle, Trustee in Bankruptcy for Golden
Enterprises, Inc.; Attorneys for the Creditors'
Committee; James M, Gaither, Jr., Attorney
for Bankrupt; Golden Enterprises, Inc., Bank-
rupt; William J. Lawing, C.P.A. , and Charles
B. Camp, Appellants.
Vv.
William E. Butner, Appellee.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
APPENDIX
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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
STATESVILLE DIVISION
BANKRUPTCY NO. ST-B-73-6
In the Matter of:
GOLDEN ENTERPRISES, INC.,
Bankrupt.
ORDER
THIS CAUSE coming on to be heard before the
undersigned Bankruptcy Judge on June 4, 1976, upon
Notice of Final Meeting duly and properly given to the
creditors of the above-named Bankrupt, to consider
applications for allowances of the Trustee, the
Attorney for the Trustee, the Attorney for the Debtor
during the Chapter XI proceedings, the Attorneys
for the Creditors' Committee, the accountant for the
Debtor, and a contractor's claim during the Chapter
XI, and to further consider the Trustee's objections
to allowances of claims, and certain other matters
relating to distribution of proceeds, and the Court
having heard the evidence, the contentions of the
parties, the arguments of Counsel, and having ex-
amined the Court files, hereby enters its findings,
conclusions and judgment as follows:
1. That on May 4, 1973, Golden Enterprises,
Inc., filed a Petition in Bankruptcy for an \rrange-
ment under Chapter XI. The Chapter XI proceeding
was somewhat unique and complex, involving many
adversary proceedings, negotiations, Court hearings,
liquidation of most of the Bankrupt's personal prop-
erty, and the payment of more than $1, 300,000.00 to
creditors. Golden's assets included inventory from
2a
its various stores located in several States with an
approximate value of $700,000.00 and real estate lo-
cated in Catawba County, North Carolina, with an
approximate value of $2,000,000.00,
2. That there were over 700 creditors of Golden
Enterprises, Inc., and a substantial number of them
were located in the New York City area. The Credi-
tors' Committee retained as its Attorneys, Arthur I.
Winard and Joseph H. Frier, Jr., of New York City,
and J. Carroll Abernethy, Jr., of Hickory, North
Carolina.
3. That a Plan of Arrangement was Proposed
by the Attorney for the Debtor and the same was ac-
cepted by the requisite dollar amount and number of
creditors through the efforts of the Attorneys for the
Creditors' Committee. However, the Debtor was un-
able to obtain confirmation of the Plan due to a bank
withdrawing its Support from the Plan. An amended
Plan of Arrangement was worked out and approved
through the efforts of the Attorney for the Debtor, the
Creditors' Committee and its Attorneys. Vhis Plan
was not confirmed due to a lack of funds for use as a
deposit. During these negotiations, the financial
statements prepared by Judd Lawing, Accountant for
the Debtor, were utilized by the Attorney for the
Debtor, the Creditors’ Committee and its Attorneys
and the Court.
4. That the Attorney for the Debtor and the
Attorneys for the Creditors' Committee were directly
involved in the marshalling of assets for the payment
to Commercial Credit, Marine Midland Bank, and
Matsushita, which Payments resulted in those claims
being either paid or compromised in full through
liquidation or otherwise. The pleadings in those
litigated matters are incorporated herein by reference.
3a
. a fe x
< AOD Dar PWR ORS: én tertlinn 8 e@ Be wine
5. That at the time the Petition under Chapter
XI was filed there was a building owned by the Bank-
rupt on Tate Boulevard in the City of Hickory that was
partially constructed but unfinished. At the time of
the filing of the Petition there existed potential liens
of contractors, suppliers, and lending institutions
that were unsatisfied and which threatened an imme-
diate liquidation of the Bankrupt's estate. Through
the efforts of the Attorney for the Debtor, the Attorneys
for the Creditors' Committee and the lien holders, a
Plan was conceived and approved and implemented
whereby the building (45,000 Square feet) was com-
pleted and rented and the existing mortgages restruc-
tured and the real estate refinanced. The prospective
tenant and the building code required a sprinkler sys-
tem which was installed by Jack Sipe Construction Co.
It was rented for $56,000.00 annually. Upon comple-
tion of the building and the consummation of the re-
financing, claims of secured creditors and lien holders
were paid or settled as follows:
a. First Citizens Bank & Trust Co. $275 000.00
prior construction loan
b. Growth Enterprises $ 70,000.00
purchase money Deed of Trust
c. Contractor $ 70,000.00
labor and materials to complete
d. Supplies $110,000.00
labor and materials
e. Taxes $ 18,000.00
local ad valorem
The above transactions worked to the direct and sub-
stantial benefit of the secured creditors, including
first and second mortgage holders. Also, the above
transactions were also designed to enhance the equity
of the unsecured creditors in the real estate.
4a
6. That while the Debtor was in Possession
numerous claims of creditors were paid or compro-
mised through a series of Court approved Proceedings
and through litigation, all with assistance and cooper-
ation of the Creditors’ Committee and its Attorneys,
and uie secured creditors. Generated income for
creditors was as follows:
Sale of Thomasville fixtures and
inventory
Sale or ordinary course of busi-
ness of inventory (net) by
Bankrupt and Commercial
Credit
Sale of inventory to Silverman
Sales (which purchacer was
found by Attorneys Winard
and Frier)
$175,000.00
$300,000.00
$174,000.00
Additional income was generated and paid to secured
creditors in the form of rent for twenty-two (22)
months (May, 1973 - January, i975) approximately
$450,000.00. These sums were used to pay first
mortgages on the Bankrupt's real estate and taxes,
which created equity for or otherwise enhanced the
position of the second mortgage holders and other
creditors. The amended Plan of Arrangement made
the sum of $545,000.00 available for payment of se-
cured creditors, which sums were paid.
7. That Golden Enterprises, Inc., operated as
a Debtor in possession in pursuit of a confirmation of
the Plans of Arrangement during the months of May,
1973, through February, 1975. (This was a period
of severe economic recession and a time when real
estate values plummeted and foreclosures by lending
institutions were numerous )
ard
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8. That as a result o: the time, efforts, and
planning of the Creditors’ Committee, its Attorneys,
Attorney for the Debtor, and Jack Sipe Construction
Co., the building on a portion of the Debtor's rea]
estate was completed during the lowest point in the
economic recession, If completion of the building had
not been conceived and implemented, no feasible Plan
of Arrangement could have been formulated for unse-
cured creditors. Without a feasible Plan, the Debtor
would have had to convert to straight bankruptcy in
late 1973 or early 1974. The real estate would have
been sold then, at a time when the economic condi-
tions of the real estate market were such that the prop-
erty would not have generated enough at auction to
Satisfy the first lien holders in full. Thus, the dili-
gent efforts of the above averted straight bankruptcy
for the Debtor until] the recession began to subside
and, in so doing, Substantially enhanced the value of
the real estate and also increased the likelihood of the
second lien holders and other creditors receiving
equity from a sale of the rea] estate by generating rent
from the improvements to reduce the balances of the
first mortgages on the real estate.
9. That Golden Enterprises, Inc., was ad-
judged a bankrupt on February 14, 1975, and Joe N.
Cagle is the duly appointed, qualified and acting
Trustee in Bankruptcy.
10. That the Trustee was appointed to conduct
the business of the Bankrupt. Among other things
the Trustee collected the rents, found tenants for va-
cant rental property, conducted a sale and resale of
the property which sold for more than the first mort-
Sages outstanding thereon, and this Bankruptcy Pro-
ceeding has been regular and Proper in all respects.
6a
11. That the total receipts during this Bank-
ruptcy Proceeding has been $167,399.17, including
accrued interest on Savings. The Trustee's monthly
reports and final reports reflect the total disburse-
ments of $4,427.85, which were allowed under pre-
vious orders of the Court as part of the costs of ad-
ministration and which are hereby ratified, approved
and confirmed. The balance on hand is $162,971.32.
12, That under Section 48 of the Bankruptcy
Act, an operating Trustee is entitled to receive such
commissions as may be allowed by the Court, but in
no event to exceed twice the maximum allowance
under normal bankruptcy proceedings. However,
the Trustee only requested the normal Trustee's
commissions and the same is hereby allowed in the
amount of $2,088.99,
13. That Joe N. Cagle, Attorney for the Trust-
ee, filed applications for compensation, pursuant to
Bankruptcy Rule 219, for legal services rendered to
the Trustee and the Bankrupt Estate, which applica-
tions are incorporated herein by reference. This
Bankruptcy Proceeding was very complex as appears
from the Court files, and it required a great deal of
legal skills and expertise to properly serve the
Trustee and the said Attorney did render the neces-
Sary legal services in a professional and competent
manner. The Attorney for the Trustee provided the
Trustee with valuable legal opinions and advice
through every phase of this very complex and time
consuming Bankruptcy Proceeding. The said Attorney
conducted title examinations of the Bankrupt's real
estate, which was comprised of four developed com-
mercial properties and several vacant tracts with
first mortgages on the various tracts from several
different lenders and with only one second mortgage
(to three parties) on all the tracts. The said Attorney
7a
Sten. %.
ae Te HS Cee atm Sess i ee eS a
assisted the Trustee in securing tenants for the rental
property. The said Attorney drafted numerous legal
documents , including leases, petitions, orders and
other pleadings, Among other services, the said
Attorney represented the Trustee in three Adversary
Proceedings and represented the Trustee at numerous
Court hearings and in one Appeal. The services of
Attorney JoeN, Cagle as described in the applications
on file were necessary and valuable and beneficial to
the Trustee and the Bankrupt Estate. The Court is of
the opinion that fair and reasonable compensation
should be allowed for these valuable services and
further that the sum of $9,000.00 (plus expenses in
the sum of $207.07) is fair and reasonable for the legal
services rendered and the same is hereby allowed,
14. That James M. Gaither, Jr., Attorney for
the Bankrupt, filed applications for compensation,
pursuant to Bankruptcy Rule 219, for legal services
rendered to the Bankrupt Estate with the Court on
December 18, 1973, and on May 20, 1974, which ap-
plications are incorporated herein by reference. On
June 11, 1974, the Court entered an Order awarding
Mr. James M. Gaither, Jr., an attorney's fee in the
amount of $34,433.75 plus expenses advanced through
May 20, 1974, in the amount of $2,240.13, of which
fee the sum of $9,000.00 has heretofore been paid to
Mr. Gaither. The aforesaid Order is hereby ratified,
approved and confirmed. Attorney James M. Gaither,
Jr., is entitled to the balance due him under the said
Court Order in the amount of $25,433.75 plus expenses
in the sum of $2,240.13 as reasonable ccinpensation
for the legal services rendered to the Bankrupt Estate
in accordance with Bankruptcy Rule 11-31 and said
sums are hereby allowed as part of the costs of ad-
ministration,
8a
15. That James M. Gaither, Jr., Attorney for
the Bankrupt, filed an application for compensation,
pursuant to Bankruptcy Rule 219, for legal services
rendered to the Bankrupt Estate since May 20, 1974,
which application is incorporated herein by reference.
The services of Attorney James M. Gaither, Jr., were
necessary and valuable and beneficial to the Bankrupt
Estate. The Court is of the opinion that fair and rea-
sonable compensation should be allowed for these
valuable services and further that the sum of $14,000.00
(plus expenses in the sum of $2,576.39) is fair and
reasonable for the legal services rendered and the
same is hereby allowed pursuant to Bankruptcy Rule
11-31 and as a part of the costs of administration.
16. ThatAttorneys, J. CarrollAbernethy, Jr.,
Joseph H. Frier, Jr., andArthur I, Winard, filed ap-
plication for compensation, pursuant to Bankruptcy
Rule 219, for legal services rendered to the Creditors’
Committee and the Bankrupt Estate, which application
is incorporated herein by reference. The legal ser-
vices rendered by Attorneys J. Carroll Abernethy,
Jr., Joseph H. Frier, Jr., and Arthur 1. Winard
were valuable and beneficial to the Creditors' Com-
mittee and the Bankrupt Estate. The Court is of the
opinion that fair and reasonable compensation should
be allowed for the said legal services pursuant to
Bankruptcy Rule 11-19.
17. That the sum of $4,625.00 (plus expenses
in the sum of $100.00) is fair and reasonable for the
legal services rendered by Attorney J. Carroll
Abernethy, Jr., and the same is hereby allowed pur-
suant to Bankruptcy Rule 11-31 and as a part of the
costs of administration.
18. That the sum of $8,000.00 (plus expenses
in the sum of $946.76) is fair and reasonable for the
9a
~~ ny .
)
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peek a lee cle Aa I
legal services rendered by Attorneys Joseph H. Frier,
Jr., and Arthur I. Winard, jointly, and the same is
hereby allowed pursuant to Bankruptcy Rule 11-3l and
as a part of the costs of administration.
19. That Judd Lawing, Certified Public Accoun-
tant, of the firm of Lawing, Rowe & Company, filed an
application for compensation, pursuant to Bankruptcy
Rule 219, for accounting services rendered to the
Bankrupt Estate, which application is incorporated
herein by reference. The services of Judd Lawing
were necessary and valuable and beneficial to the
Bankrupt Estate, and the Court is of the opinion that
fair and reasonable compensation should be allowed
for these valuable services. The sum of $4,137.25 is
fair and reasonable for the accounting services ren-
dered by Judd Lawing and the same is hereby allowed
as a part of the costs of administration.
20. That Jack Sipe Construction Co., filed an
application seeking the sum of $26,451.77 for a sprink-
ler system which it installed in the warehouse facility
constructed on the Bankrupt's property during the
Chapter XI proceeding. The installation of this
sprinkler system was beneficial to the Bankrupt
Estate and necessary in order to complete the said
facility and arrange permanent financing on the real
estate, all of which was accomplished during the
Chapter XI proceeding. The Court is of the opinion
that the claim of Jack Sipe Construction Co., in the
amount of $26,451.77 is valid and that the same should
be ailowed as a necessary cost and expense in the
preservation of the Bankrupt Estate, and the same is
hereby allowed as a part of the costs of administration.
21. That the wage and commissions claim of
Charles B. Camp is hereby allowed in the sum of
$600.00 and the balance of his Claim No. 465 in the
10a
amount of $26,650.00 is hereby allowed as an unse-
cured claim.
22. That the correct balance owed to First
Citizens Bank and Trust Company is the sum of
$174,397.16. All the claims of First Citizens Bank
and Trust Company (Claim Nos. 467, 143 and 192)
are hereby consolidated and reduced to the sum of
$174,397.16, which sum is hereby allowed as an un-
secured claim.
23. That Claim No. 436 filed by Marine Midland
Leasing Corp., in the amount of $108,521.47, was
partially compromised, settled and paid during the
Chapter XI proceeding and the same is hereby dis-
allowed with consent of Marine Midland Leasing Corp.
Claim No. 477 filed by Marine Midland Leasing Corp.
in the amount of $67,495.61 is hereby allowed as an
unsecured claim.
24. That Claim No. 144 filed by Jack Sipe Con-
struction Co., in the amount of $81,248.46 is hereby
disallowed, with consent of Jack Sipe Construction Co.
25. That the objection of the Trustee to the al-
lowance of Claim No. 471 of The First National Bank
of Catawba County in the amount of $48,018.98 is not
contested by said creditor. The collateral was sold
subject to this lien. The lien of this creditor was not
disturbed or affected by the sale and it was not trans-
terred to the proceeds. The creditor was left free to
pursue and recover the collateral outside, without any
interference of the Bankruptcy Court, and may subject
the collateral to the satisfaction of its claim. Further,
it appears that this creditor was paid or otherwise
Satistied outside the Bankruptcy Proceedings. Thus,
this claim is hereby disallowed in toto.
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26. That the objection of the Trustee to the
allowance of Claim No. 469 of Fidelity Federal Savings
and Loan Association in the amount of $176,143.35 is
not contested by said creditor. The collateral was sold
subject to this lien. The lien of this creditor was not
disturbed or affected by the sale and it was not trans-
ferred to the proceeds. The creditor was left free to
pursue and recover the collateral outside, without any
interference of the Bankruptcy Court, and may subject
the collateral to the satisfaction of its claim. Further,
it appears that this creditor was paid or otherwise
satisfied outside the Bankruptcy Proceedings. Thus,
this claim is hereby disallowed in toto.
27. That the objection of the Trustee to the
allowance of Claim No. 464 of Shelby Savings and Loan
Association in the amount of $980,507.02 is not con-
tested by said creditor. The collateral was sold sub-
ject to this lien. The lien of this creditor was not
disturbed or affected by the sale and it was not trans-
ferred to the proceeds. The creditor was left free to
pursue and recover the collateral outside, without any
interference of the Bankruptcy Court, and may subject
the collateral to the satisfaction of its claim. Further,
it appears that this creditor was paid or otherwise
satisfied outside the Bankruptcy Proceedings. Thus,
this claim is hereby disallowed in toto.
28. That Claims Nos. 478, 425 and 482 are du-
plications and actually represent only one joint claim
of William E. Butner, Robert L. McKaughn, Jr., and
Jack Sipe Construction Co., in the amount of $360,000.00,
represented by a Note and second Deed of Trust on the
Bankrupt's real estate. Pursuant to an Adversary Pro-
ceeding, the collateral was sold free and clear of this
lien with the lien transferred from the property to the
proceeds of the sale. The U. S. District Court allowed
this creditor to bid at the sale with the amount of his
l2a
debt in lieu of putting up cash. Mr. William E. Butner
(owner of the entire claim by assignment from the
other two creditors) became the highest bidder at the
resale of the collateral in the amount of $174,000.00.
If the said mortgage holder had actually paid, this
money would have been distributed to second mortgage
holders, less the Trustee's commissions. Thus, none
of the funds in the hands of the Trustee were derived
from the sale of the collateral and the balance of this
claim is disallowed as a secured claim. The Court is
of the opinion that the balance of this claim in the
amount of $186,000.00 should be allowed as an unse-
cured claim to Mr. William E. Butner and the same is
hereby allowed.
29, That the Trustee has certain accounts re-
ceivable of the Bankrupt totaling $7,437.65, which he
has been unable to collect. No offer to purchase the
accounts receivable is available and the Court is of the
opinion that the Trustee ought to be allowed to abandon
the same.
CONCLUSIONS OF LAW
1. That this Bankruptcy Proceeding has been
regular and proper in all respects.
2. That the services of Attorney Joe N. Cagle
were necessary and valuable and beneficial to the
Trustee and the Bankrupt Estate and that fair and rea-
sonable compensation should be allowed for these valu-
able services and further that the sum of $9,000.00
(plus expenses in the sum of $207.07) is fair and rea-
sonable for the legal services rendered and the same
is hereby allowed as part of the costs of administration.
3. Thaton June 11, 1974, the Court entered an
Order awarding Mr. James M. Gaither, Jr., an
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attorney's fee in the amount of $34,433.75 plus ex-
penses advanced through May 20, 1974, in the amount
of $2,240.13, of which fee the sum of $9,000.00 has
he etofore been paid to Mr. Gaither. The aforesaid
Oi.er is hereby ratified, approved and confirmed.
Attorney James M. Gaither, Jr., is entitled to the
balance due him under the said Court Order in the
amount of $25,433.75 plus expenses in the sum of
$2,240.13 as reasonable compensation for the legal
services rendered to the Bankrupt Estate in accordance
with Bankruptcy Rule 11-31 and said sums are hereby
allowed as part of the costs of administration.
4. That the services of Attorney James M.
Gaither, Jr., were necessary and valuable and bene-
ficial to the Bankrupt Estate and that fair and reason-
able compensation should be allowed for these valuable
services and further that the sum of $14,000.00 (plus
expenses in the sum of $2,576.39) is fair and reason-
able for the legal services rendered and the same is
hereby allowed pursuant to Bankruptcy Rule 11-31,
and as a part of the costs of administration.
5. That the legal services rendered by Attorneys
J. Carroll Abernethy, Jr., Joseph H. Frier, Jr., and
Arthur I. Winard were valuable and beneficial to the
Creditors' Committee and the Bankrupt Estate ana that
fair and reasonable compensation should be allowed
for the said legal services pursuant to Bankruptcy
Rule 11-19.
6. That the sum of $4,625.00 (plus expenses
in the sum of $100.00) is fair and reasonable for the
legal services rendered by Attorney J. Carroll
Abernethy, Jr., and the same is hereby allowed pur-
suant to Bankruptcy Rule 11-31 and as a part of the
costs of administration.
l4a
7. That the sum of $8,000.00 (plus expenses in
the sum of $946.76) is fair and reasonable for the legal
services rendered by Attorneys Joseph H. F rier, Jr.,
and Arthur I. Winard, jointly, and the same is hereby
allowed as a part of the costs of administration, pursu-
ant to Bankruptcy Rule 11-31.
8. That the services of J udd Lawing were neces-
Sary and valuable and beneficial to the Bankrupt Estate
and that fair and reasonable compensation should be
allowed for these valuable services and further that
the sum of $4,137.25 is fair ar.d reasonable for the ac-
counting services rendered by Judd Lawing and the
Same is hereby allowed as a part of the costs of ad-
ministration,
9. That the claim of Jack Sipe Construction Co.,
in the amount of $26, 451.77 is valid and that the same
should be allowed as a necessary cost and expense in
the preservation of the Bankrupt Estate, and the same
is hereby allowed as a part of the costs of administra-
tion.
10. That the wage and commissions claim of
Charles B, Camp is hereby allowed in the sum of
$600.00 and the balance of his Claim No. 465 in the
amount of $26,650.00 is hereby allowed as an unse-
cured claim.
ll. That the correct balance owed to First
Citizens Bank and Trust Company is the sum of
$174,397.16. All the claims of First Citizens Bank
and Trust Company (Claim Nos. 467, 143 and 192)
are hereby consolidated and reduced to the sum of
$174,397.16, which sum is hereby allowed as an un-
secured claim.
l5a
12. That Claim No. 438 filed by Marine Midland
Leasing Corp., in the amount of $108,521.47 was par-
tially compromised, settled and paid during the Chapter
XI proceeding and the same is hereby disallowed with
consent of Marine Midland Leasing Corp. Claim No.
477 filed by Marine Midland Leasing Corp. in the
amount of $67,495.61 is hereby allowed as an unse-
cured claim.
13. That Claim No. 144 filed by Jack Sipe Con-
struction Co., in the amount of $81,246.46 is hereby
disallowed, with consent of Jack Sipe Construction
Co.
14. That Claim No. 471 of The First National
Bank of Catawba County, in the amount of $48,018.98
is hereby disallowed.
15. That Claim No. 489 of Fidelity Federal
Savings and Loan Association, in the amount of
$176,143.35 is hereby disallowed.
16. That Claim No. 464 of Shelby Savings and
Loan Association, in the amount of $176,143.35 is
hereby disallowed.
17. That Claim Nos. 476, 425 and 462 are du-
plications and actually represent only one joint claim
of William E. Butner, Robert L. McKaughn, Jr., and
Jack Sipe Construction Co., in the amount of $360,000.00
represented by a Note and second Deed of Trust on the
Bankrupt's real estate. Pursuant to an Adversary Pro-
ceeding, the collateral was sold free and clear of this
lien with the lien transferred from the property to the
proceeds of the sale. The U. S. District Court allowed
this creditor to bid at the sale with the amount of his
debt in lieu of putting up cash. Mr. William E. Butner
(owner of the entire claim by assignment from the
l6a
other two creditors) became the highest bidder at the
resale of the collateral in the amount of $174,000.00.
Thus, none of the funds in the hands of the Trustee
were derived from the sale of the collateral and the
balance of this claim is disallowed as a secured claim.
The Court is of the opinion that the balance of this
claim in the amount of $186,000.00 should be allowed
as an unsecured claim to Mr. William E. Butner and
the same is hereby allowed.
18. That the Trustee has certain accounts re-
ceivable of the Bankrupt totaling $7,437.65, which he
has been unable to collect. No offer to purchase the
accounts receivable is available and the Court con-
cludes that the Trustee ought to be allowed to abandon
the same,
19. That all other findings of fact are incor-
porated herein.
NOW, THEREFORE, it is ORDERED, ADJUDGED
AND DECREED as follows:
1. That the disbursements of the Trustee in
the amount of $4,427.85, which were allowed under
previous orders of the Court, are hereby ratified,
approved and confirmed as part of the costs of ad-
ministration.
2. That the Trustee be and he is hereby allowed
Trustee's commissions in the sum of $2,088.99 as a
part of the costs of administration.
3. ThatJoeN. Cagle, Attorney for the Trustee,
be and he is hereby allowed the sum of $9,000.00 as
attorney's fee and the sum of $207.07 for expenses ad-
vanced, as a part of the costs of administration.
l7a
4. That James M. Gaither, Jr., Attorney for the
Bankrupt, be and he is hereby allowed an attorney's
fee in the sum of $25,433.75 and the sum of $2,240.13
for expenses advanced (representing the balance due
Mr. Gaither under the Court Order dated J une ll, 1974),
as a part of the costs of administration.
5. That James M. Gaither, Jr., Attorney for the
Bankrupt, be and he is hereby allowed the sum of
$14,000.00 as attorney's fee and the sum of $2,576.39
for expenses advanced (for legal services rendered
since May 20, 1974), as a part of the costs of adminis-
tration.
6. That J. Carroll Abernethy, Jr., Attorney for
the Creditors' Committee be and he is hereby allowed
the sum of $4,625.00 as an attorney's fee and the sum
of $100.00 for expenses advanced, as a part of the costs
of administration.
7. That Joseph H. Frier, Jr., and Arthur I.
Winard, jointly, Attorneys for the Creditors' Committee ,
be and they are hereby allowed the sum of $8,000.00
as attorneys’ fees and the sum of $946.76 for expenses
advanced, as a part of the costs of administration.
8. That Judd Lawing, Certified Public Accoun-
tant, Accountant for the Bankrupt, be and he is hereby
allowed the sum of $4,137.25 for accounting services,
as a part of the costs of administration.
9. That Jack Sipe Construction Co., be and it
is hereby allowed the sum of $26,451.77 for the instal -
lation of a sprinkler system during the Chapter XI
proceeding, as a part of the costs of administration.
10. That the wage and commissions claim of
Charles B. Camp is hereby allowed in the sum of
18a
$600.00 and the balance of his Claim No. 465 in the
amount of $26,650.00 is hereby allowed as an unse-
cured claim.
ll. That the correct balance owed to First Citi-
zens Bank and Trust Company is the sum of $174,397.16.
That the claims of First Citizens Bank and Trust Com-
pany (Claim Nos. 467, 143 and 192) are hereby con-
solidated and reduced to the sum of $174,397.16, which
sum is hereby allowed as an unsecured claim.
12. That Claim No. 436 filed by Marine Midland
Leasing Corp., in the amount of $108,521.47, was
partially compromised, settled and paid during the
Chapter XI proceeding and the same is hereby dis-
allowed with consent of Marine Midland Leasing Corp.,
and that Claim No. 477 filed by Marine Midland Leas-
ing Corp., in the amount of $67,495.61 is hereby al-
lowed as an unsecured claim.
13. That Claim No. 144 filed by Jack Sipe Con-
struction Co., in the amount of $81,248.46 is hereby
disallowed, with consent of Jack Sipe Construction Co.
14. That Claim No. 471 of The First National
Bank of Catawba County, in the amount of $48,018.98
is hereby disallowed.
15. That Claim No. 469 of Fidelity Federal
Savings and Loan Association, in the amount of
$176,143.35, is hereby disallowed.
16. That Claim No. 464 of Shelby Savings and
Loan Association, in the amount of $980,507.02, is
hereby disailowed.
17. That the balance of the $360,000.00 claim
of Mr. William E. Butner, in the amount of $186,000.00
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is disallowed as a secured claim and it is hereby
allowed as an unsecured claim.
18. That the Trustee is hereby allowed to aban-
don the Bankrupt's accounts receivable as described
in the Final Report.
19. That the Motion For Distribution of Funds
filed by William E. Butner is hereby denied.
20. That except as hereinabove modified and
amended, the Final Report of the Trustee is hereby
approved, ratified and confirmed.
This the lst day of July, 1976.
Marvin R. Wooten
U.S. Bankruptcy Judge
20a
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
STATESVILLE DIVISION
Bankruptcy Number ST-B-73-6
In Re:
GOLDEN ENTERPRISES, INC.,
Bankrupt.
MEMORANDUM AND ORDER
This matter is before the Court upon an appeal
from an order of the Bankruptcy Court dated and en-
tered on July 1, 1976, whereby William E. Butner was
found to be an unsecured creditor of the Bankrupt,
Golden Enterprises, Inc. The appellant contends that
his claim should be given secured status and paid in
full out of funds received by the Trustee from rents
and profits derived from real estate upon which he
held a second mortgage.
The appeal was heard at the August 1976 term
at Statesville and after a careful examination of the
records and a consideration of the briefs and oral ar-
guments, the Court now enters its findings and con-
clusions.
On May 4, 1973 Golden Enterprises, Inc., filed
a petition in bankruptcy for an arrangement under
Chapter XI of the Bankruptcy Act. A plan was never
confirmed and the Bankrupt operated as a Debtor in
possession from the date of filing until February 14,
1975, when it was adjudged a bankrupt and a Trustee
was appointed. During the pendency of the petition
under Chapter XI and upon the application of the
attorney for the Bankrupt, Simon Joseph Golden was
2la
appointed by the Bankruptcy Court as Agent to collect
the rents from the real estate owned by Golden Enter-
prises, Inc., and to disburse the proceeds to the pay-
ment of (1) federal and state income taxes; (2) monthly
payments to first mortgages; (3) ad valorem property
taxes; (4) fire insurance premiums, and (5) interest
and principal on second mortgages. After the straight
bankruptcy adjudication the Trustee took charge of
the real estate and collected the rents. During the ad-
ministration of the Bankrupt's estate the Trustee col-
lected some $167, 2799.17 in rents and accured interest,
of which $162,971.32 remains on hand after authorized
disbursements. The question in controversy here is
who gets these funds, the holder of the second mort-
gage, or the bankrupt's estate? If it goes to the estate,
the bulk of it will be used to pay court costs and
attorney fees.
At all times pertinent to this appeal the appellant,
William E. Butner, together with Robert L. McKaughn,
Jr., and Jack Sipe Construction Company, held a
second mortgage on real estate owned by the Bankrupt
securing an indebtedness of $360,000.00. By assign-
ment, Butner is the sole owner and holder of the note
and is entitled to any recovery had thereon. Pursuant
to an adversary proceeding the real estate was ordered
sold subject to the first mortgage but free and clear of
the second mortgage, wiih the lien of the second mort-
gage being transferred from the property to the pro-
ceeds of the sale. By the terms of the order Butner
was permitted to bid on the property at the sale the
amount of his debt in lieu of a cash bid. At the salehe
became the last and highest bidder for the prop-
erty with a bid of $174,000.00, leaving a balance
of $186,000.00 unsatisfied.
The Bankruptcy Judge found that the appellant's
bid and purchase of the property extinguished his
22a
secured claim, and that the balance due on his note
would constitute nothing more than an unsecured
claim. The Judge reasoned that had the appellant
actually submitted a cash bid, the money would have
been distributed to him as the holder of the second
mortgage, less the Trustee's commissions and the
cost of sale, thereby extinguishing the secured debt.
Since there appears to be no dispute as to the
facts, the sole question for determination by this Court
is whether the Bankruptcy Judge erred in his holding
that as a matter of law the appellant's secured claim
does not extend to the income derived from the rental
of the real estate during bankruptcy administration.
There appears to be considerable disagreement
between the Circuit Courts of Appeals on this issue.
In Fidelity Bankers Life Insurance Co. v. Williams,
506 F.2d 1242 (4th Cir. 1974), Chief Judge Haynsworth
stated:
"Some courts, notably the Third and Seventh
Circuits, hold that a secured creditor may re-
cover the rental income. See, e.g., Inre
Pittsburgh-Duquesne Development Co., 482
F.2d 243, 246 (3d Cir. 1973); Central Hanover
Bank & Trust Co. v. Philadelphia & Reading
Coal &lron Co., 99 F.2d 642 (3d Cir. 1938);
In re Wakey, 50 F.2d 869 (7th Cir. 1921). Those
courts view the issue as a contest between the
secured creditors and the unsecured ones for
whom the bankruptcy court operates the estate.
Since the rental income is additional security
for the mortgage loan, the Third and Seventh
Circuits equitably shift the income from the un-
secured to the secured creditors.
"Other courts of appeals, including the Eighth
23a
ee
and Ninth Circuits, rejectthis approach. E.g.,
Tower Grove Bank & Trust Co. v. Weinstein,
119 F.2d 120 (8th Cir. 1941); In re Hotel Saint
James Co., 65 F.2d 82 (9th Cir. 1933); see In
re Humeston, 83 F.2d 187 (2d Cir. 1936). Those
authorities have found that the mortgagee has no
right to the rents because, under the mortgage
terms, state courts require the mortgagee to
take possession in order to fix his right to the
rents. A mortgagee, however, cannot take pos-
session and collect rents once the bankruptcy
court has assumed control of the property. Ac-
cordingly, those courts substitute other actions
to secure rights in the rental income for the
contractual entry of possession and collection
of rents. If the mortgagee has petitioned the
bankruptcy court for a sequestration order,
obtained the appointment of a receiver to collect
the rents, or secured the court's consent to
foreclose, the Eighth and Ninth Circuits allow
him to recover the rental income during the
bankruptcy administration. See, e.g., Pollack
v. Sampsell, 174 F.2d 415 (9th Cir. 1949);
Mortgage Loan Co. v. Livingston, 45 F.2d 28
(8th Cir. 1930); 4A Collier, supra, § 70.16, at
161-63."
The issue in Williams was identical with the
question here but the Court determined that the mort-
gagee was entitled to the rents on the basis of a pro-
vision in the mortgage and thereby did not reach and
decide our basic issue. However, the Court did go
far enough to blaze some trails to head us in the right
direction when it held that:
"Although Fidelity pursued its abandonment
petition, it did not take the steps required by
the Eighth and Ninth Circuits to fix its right to
24a
the rental income. Its failure to take action,
however, has not caused difficulty in ascertain-
ing the amount of the net rental income from
operating the property. Nonetheless, the sup-
plemental agreement between Fidelity and O'Neil
removes this case from the primary area of dis-
pute between the other courts of appeals. That
agreement assigned the income to Fidelity with-
out requiring it to take possession of the build-
ing." (Page 1243)
It thus appears that the Court of Appeals for the
Fourth Circuit would follow the approach of the Eighth
and Ninth Circuits. In following this approach four
factors should be taken into consideration: (1) the
nature of the mortgage transaction under applicable
state law; (2) the terms of the mortgage itself; (3)
the acts of the parties thereunder, and (4) whether
equitable consideration as applied by the federal
bankruptcy court may alter the result. 4A, Collier
on Bankruptcy, § 70.16 (1976).
Under North Carolina law a mortgagor is deemed
to be the owner of the land subject to the debt, and
even after default, he is entitled to rents and profits
from it until the mortgagee takes possession. Gre
v. Williamson, 246 N.C. 356, 98 S.E.2d 481 (1957);
Kistler v. Development Co., 205N.C. 755. 172 S.E.
413 (1934); Parker Co. v. Bank, 204N.C. 432, 168
S.E. 681 (1933).
In Kistler v. Development Co., supra, the
court held:
"In the absence of a stipulation to the contrary
a mortgagor of real property who is permitted
to retain possession is entitled to the rents and
profits. Credle v. Ayers, 126N.C., 11. As
25a
between the mortgagor and the mortgagee equity
makes the mortgage a charge upon the rents and
profits when the mortgagor is insolvent and the
security is inadequate (Carr v. Dail, 114N.C.,
284), but the prevailing rule is that a mortgagee
is not entitled to rents untii _ntry is made or a
suit for foreclosure is begun. Killebrew v.
Hines, 104 .N. C., 182; Parker Co. +. Bank,
204N.C. 432. In the latter case it was heid that
the mortgagee's right to collect the rents and
income of mortgaged property arises only after
the mortgagee or trustee has taken possession
either by consent or by an order or decree of
the court. There a receiver had been appointed
in an action for the foreclosure of the mortgage
and as the amount realized from a sale of the
property was not sufficient to pay the mortgage
debt the rents were properly applied in payment
of the deficiency."
The question then arises as to whether the ap-
pellant, the mortgage holder, took the necessary steps
to obtain possession of the property or to foreclose his
mortgage. He contends that he and the holders of the
first mortgages attempted to no avail on numerous oc-
casions to get the bankruptcy court to abandon the
real estate to them so they could proceed to foreclose.
As it turned out, the real estate when sold at public
sale did not sell for enough to pay the secured claims
and therefore, in retrospect, it appears that the prop-
erty should have been abandoned to the secured
creditors. This was not done, and it was sold by
order of the bankruptcy court. It was necessary for
the appellant to appeal to this Court in order to obtain
the right to use his note in connection with his bid on
the property covered by his mortgage at the sale
ordered by the Bankruptcy Judge and conducted by
the Trustee.
26a
As already noted by the Court, on April 17,
1974, James M. Gaither, attorney for the Debtor,
moved for the appointment of an agent or receiver to
collect the rental income from the real estate and to
apply the same to the payment of taxes, mortgage pay-
ments, and insurance. In his Motion, Mr. Gaither
states:
" , .. That several secured parties including
Shelby Savings and Loan Association, Jack
Sipe Construction Company, William E. Butner,
and Robert L. McKaughn, Jr., as well as the
Creditors' Committee, have requested that the
income derived from rentals, as well as the
books and records of the company with regard
to its real estate, be placed in the hands of a
court-appointed individual with directions to
collect the rents, make all mortgage payments,
pay taxes, insurance, and repairs and accumu-
late excess cash flow for the benefit of secon-
dary lienholders and the unsecured creditors."
It therefore appears to this Court that the ap-
pointment of Mr. Golden to collect the rents was in
effect the appointment of a receiver as authorized
under Rule 201 of the Rules of Bankruptcy Procedure.
The files show that this appointment resulted from
the request of the secured creditors, including the
appellant, Mr. Butner, who were attempting to apply
these funds to the claims they held against the Debtor.
Admittedly, the Trustee was subsequently appointed
in February of 1975, thereby terminating the appoint-
ment of the receiver but the Trustee continued to col-
lect these rents and profits, and to hold them in ac-
cordance with the original order. It would have been
an exercise in futility for the appellant to have moved
for the appointment of a receiver to collect and se-
quester these rents since that was already being done.
Z7a
{t therefore appears that the appellant did all
that he could do to obtain possession of the property
and proceed to foreclosure as well as to have the rents
collected and sequestered, and has met the require-
ments set forth in Williams, Parker Co. and Develop-
ment Co. supra, necessary to extend his secured
status to the rents from the property.
Turning to the second and third factors which
should be considered, the Court finds nothing in the
terms of the mortgage or in the acts of the parties to
aid in the determination of this issue.
The final factor is whether equitable considera-
tion as applied by the bankruptcy court may alter the
results. The Court finds no difficulty in determining
that equity requires that rents collected under the
circumstances of this case should go to the secured
lienholders rather than to the unsecured creditors.
However, in this case it appears to be a contest be-
tween the holder of the second mortgage on the one
hand, and the trustee and attorneys for the Bankrupt
and Creditors Committee on the other hand. The
attorneys admitted at the hearing that the court costs,
the trustee and attorney fees as approved by the
bankruptcy court would consume most of the rental
funds collected and on hand. The files disclose that
the bankrupt's estate owned sizeable quantities of
personal property, and the Court is at a loss to under-
stand why the bulk of the costs and fees has been
relegated for payment out of the rents from the real
estate.
It is an accepted rule that in a bankruptcy sale
free of liens and encumbrances the proceeds are
chargeable with the actual cost of the sale plus costs
reasonably incurred in the preservation of the prop-
erty and the portion of the administration expenses
28a
that may be properly attributed to the sale. However,
the lien holder cannot be charged with additional ex-
penses or the general cost of administration of the
bankrupt's estate such as custs of operating the busi-
ness or the expenses and losses thereof. Collier's
Volume 4-A at Page 1223.
In the instant case, the Court has found that
the appellant's secured status extended to the rents
and profits derived from the property during the ad-
ministration of the bankrupt's estate. Applying the
aforementioned rule to this finding, it would be im-
proper to charge these rents with the fees and costs
of the entire estate approved by the Bankruptcy Judge.
Therefore, it is the opinion of this Court that the case
should be remanded on this point for a determination
of the cost of sale and of the costs reasonably incurred
in the preservation of this property. Also, a finding
should be made as to what administrative expenses
are properly attributable to this sale. It is the con-
clusion of this Court that only these amounts are prop-
erly chargeable against these rents, and that the
balance is rightfully owing to the appellant under his
security interest.
IT IS, THEREFORE, ORDERED that the Bank-
ruptcy Judge's finding of the appellant's unsecured
status as to the rerts derived from the encumbered
property at issue during the bankruptcy be, and the
same is hereby reversed and vacated, and the case
is remanded for a determination of what costs and
fees are properly chargeable against these rents.
The Court has by separate findings and Order
directed the payment of the sum of $26,451.77 to Jack
Sipe Construction Company as the sum due and pay-
able for the completion of a building on the real estate.
This work was done by order of the Bankruptcy Court
29a
and by consent of these parties ind inured to the bene-
fit of the creditors, secured and unsecured.
This the 12th day of November, 1976.
Woodrow W. Jones
Chief Judge
30a
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
(Argued October 4 - decided December 8, 1977)
Docket Nos. 77-1138 and 77-1151
Golden Enterprises, Inc., and William E. Butner v.
United States of America
and
Joe Cagle, Trustee in Bankruptcy for Golden Enter-
prises, Inc., etal. v. William E. Butner
BRYAN, Senior Circuit Judge; WINTER and THOMSEN
(sitting by designation), Judges.
Joe N. Cagle (Cagle and Houck on brief) and
James M. Gaither, Jr., and (J. Carroll Abernethy,
Jr., on brief) for Appellants in 77-1151.
Carleton D. Powell, Attorney, Department of
Justice Tax Division (Gilbert E. Andrews & Crombie
J. Garrett, Attorneys, Department of Justice Tax
Division; Myron C. Baum, Acting Assistant Attorney
General and Keith S. Snyder, United States Attorney
on brief) for Appellant in 77-1138.
William E. Butner for Appellee in 77-1138 and
77-1151.
WINTER, Circuit Judge:
The question we must decide is which of the
mortgagee or the bankrupt estate is entitled to rents
realized from mortgaged property between the time
of the mortgagor's bankruptcy and foreclosure of the
3la
mortgage. On the facts before us, we hold that they
go to the bankrupt estate. We reverse the district
court and reinstate the disposition made by the bank-
ruptcy judge.
I.
Golden Enterprises, Inc. (Golden) was the
owner of several parcels of real estate located in North
Carolina on which first mortgages were given to sev-
eral financial institutions and a second mortgage given
to William E. Butner and others, whose interests
Butner later acquired, to secure a debt of $360,000.
Golden filed a petition in bankruptcy for an arrange-
ment under Chapter XI of the Bankruptcy Act (11
U.S.C. §§ 701-799). It operated as a debtor in pos-
session for a time, but a plan of arrangement was
never confirmed. On February 14, 1975, the pro-
ceeding was transformed into a liquidating bank-
ruptcy.
While the Chapter XI petition was pending, the
bankruptcy court appointed an agent to collect
Golden's rents and to apply them to the payment of
the taxes, insurance, interest and principal payments
due on the mortgages. When the straight bankruptcy
ensued, the trustee collected the rents. The trustee
made some authorized disbursements from the rents
he collected. By direction of the bankruptcy court,
however, he made no payments on the mortgages.
After the authorized disbursements, the sum of
$162,971.32 remained in the hands of the trustee and
it is the fund which is the subject of this appeal.
The mortgages did not provide any security
interest for the mortgagees in the rents. The mort-
gages were in default by the time that Golden was ad-
judicated bankrupt. At the first meeting of creditors,
32a
Butner requested that the property be abandoned to
him subject to the first mortgages. The trustee was
willing to accede to Butner's request, and the trustee
suggested this procedure as one of several alternatives
for winding up the bankruptcy since there were sub-
stantially no other assets for general creditors. He
also suggested, as another alternative, a sale or fore-
closure by him as trustee of the second mortgage--
that is, a sale subject to the first mortgages with the
lien of the second mortgage transferred to the proceeds
of the sale. When the bankruptcy judge indicated a
preference for the latter, the trustee formally sought
and obtained authority for a public sale subject to the
first mortgages, with the rights of other lienholders
transferred to the proceeds of sale. Although the
property sold, the district court, upon Butner's ap-
peal, ordered a resale of the property with permission
to Butner, if he was the successful bidder, to make
payment by satisfying the debt due him in lieu of cash.
Butner was the successful bidder at the second sale.
The amount of the debt due him at that time was
$360,000. He bid $174,000 for the properties and
paid for them by consuming part of the debt due him,
leaving a balance of $186,000 of the amount secured
by his second mortgage unsatisfied.
The deed from the trustee to Butner provided
that "([t])he accrued rents and the right to collect un-
paid accrued rents from [the subject property] are
hereby expressly not conveyed, but are reserved to
the [trustee] ." Although Butner never requested that
the rents be sequestered for his benefit prior to the
sale, he claimed, before the bankruptcy judge, that
the unsatisfied debt due him ($186,000) should be
given secured status and paid from the fund of net
rents collected after bankruptcy was adjudicated.
The bankruptcy judge rejected the contention and
ruled that the order of sale transferred the lien of the
33a
second mortgage to the proceeds of sale and that
Butner should be treated as a general creditor with
respect to his unsatisfied security interest. The dis-
trict court, however, ruled that, notwithstanding the
absence of a provision in the second mortgage relating
to rents before foreclosure and Butner's failure to seek
a sequestration of the rents for his benefit, Butner was
entitled to the fund. It reached this conclusion on both
legal and equitable grounds.
The trustee and creditors, including the United
States (with claims for unpaid taxes amounting to ap-
proximately $50,000), appealed. We think the bank-
ruptcy judge was correct. We therefore reverse the
district court's order and remand for reinstatement
of the bankruptcy judge's determination.
Il.
The question of a secured creditor's right to
income generated by the secured property during
bankruptcy has produced a split of opinion among the
circuits. Although we have not ruled on this issue, a
recent opinion by Judge Haynsworth in Fidelity Bank-
ers Life Insurance v. Williams, 506 F.2d 1242, 1243
(4 Cir. 1974), ably summarizes the two competing
theories:
Other courts of appeals have disagreed about
whether a lien creditor is entitled to the income
from property during bankruptcy administra-
tion. . . . Some courts, notably the Third and
Seventh Circuits, hold that a secured creditor
may recover the rental income. ... Those
courts view the issue as a contest between the
secured creditors and the unsecured ones for
whom the bankruptcy court operates the estate.
Since the rental income is additional security
34a
for the mortgage loan, the Third and Seventh
Circuits equitably shift the income from the un-
secured to the secured creditors.
Other courts of appeals, including the Eighth
and Ninth Circuits, reject this approach... .
Those authorities have found that the mortgagee
has no right to the rents because, under the
mortgage terms, state courts require the mort-
gagee to take possession in order to fix his
right to the rents. A mortgagee, however, can-
not take possession and collect rents once the
bankruptcy court has assumed control of the
property. Accordingly, those courts substitute
other actions to secure rights in the rental in-
come for the contractual entry of possession and
collection of rents. If the mortgagee has peti-
tioned the bankruptcy court for a sequestration
order, obtained the appointment of a receiver to
collect the rents, or secured the court's consent
to foreclose, the Eighth and Ninth Circuits allow
nim to recover the rental income during the
bankruptcy administration. See, e.g., Pollack
v. Sampsell, 174 F.2d 415 (9th Cir. 1949); Mort-
gage Loan Co. v. Livingston, 45 F.2d 28 (8th Cir.
1930); 4A Collier, supra § 70.16, at 161-63.
We now align ourselves with the Eighth and
Ninth Circuits. Their view seems preterable because
it best ensures that the outcome in federal court will
parallel the result that would obtain in state court had
bankruptcy proceedings not been instituted. We look
to see what Butner's rights were under state law and
whether he took steps which are the analogue of what
state law requires.
Ill,
Under North Carolina law, absent a special pro-
vision giving the mortgagee a right to receive the
rents, a mortgagee must take possession of the mort-
gaged property in order to be entitled to the rents
which issue therefrom. Gregg v. Williamson, 246
N.C. 356, 98 S.E.2d 491 (1957); Kistler v. Develop-
ment Co., 205N.C. 755, 1972 S.E. 413 (1934); Killi-
brew v. Hines, 104N.C. 182 (1889). Butner's second
mortgage gave him no right to the rents before fore-
closure, and because of the bankruptcy he did not, of
course, take possession of the mortgaged property.
We turn then to the steps he took before the trustee's
sale,
The record reflects no request by Butner during
bankruptcy for a sequestration of rents or for the ap-
pointment of a receiver. The district court found that
such a request "would have been an exercise in futili-
ty . . . since that was already being done," but this
statement is erroneous. Of course, there had been a
receiver until the adjudication in bankruptcy and he
had applied the rents collected, inter alia, to the pay-
ment of interest and principal on the mortgages. But
the adjudication of bankruptcy and the appointment of
a trustee terminated the prior receivership, Bankrupt-
cy Rule 201 (a), and thereafter the trustee collected
the rents for the bankrupt estate. Moreover, he was
specially instructed by the bankruptcy court not to
make any mortgage payments. Manifestly, what the
district court thought was being done was not being
done; and had Butmer desired it to be done, it was in-
cumbent on him to make a specific request for the ap-
pointment of a receiver and the sequestration of rents.
Similarly, the record reflects no formal action
on the part of Butmer to proceed with foreclosure in
36a
compliance with Bankruptcy Rule 701. He had, of
course, made several informal requests that the prop-
erty be abandoned, but when they were not granted
he pursued the matter no further. Indeed, he made
such a request of the bankruptcy judge at a time after
the adjudication, when approximately $50,000 in rents
had been collected by the trustee; but at that time he
stated he would waive any claim to the accrued rents.
When the trustee formally requested authority to sell
the property, Butner was made an adversary party to
the request. He filed no answer, although he could
have requested abandonment, permission for him to
foreclose under state law, or a determination of the
priority of his lien on the rents. In short, we can find
no sufficient indicia that Butmer would have proceeded
to assert a security interest in the rents had ban‘:rupt-
cy not ensued.
IV,
The district court, in reversing the order of
the bankruptcy judge, stated, "the Court finds no dif-
ticulty in determining that equity required that rents
collected under the circumstances of this case should
go to the secured lienholders rather than to unsecured
creditors." The difficulty that we have is that the dis-
trict court failed to articulate the equitable considera-
tions that it thought required the result that it reached.
Our examination of the record does not persuade
us that there is any significant equitable consideration
which requires a resolution of the dispute in favor of
one party over another. Butner ostensibly lost on his
second mortgage. Yet we are told that he has profited
from ultimate disposition of the property. If the fund
inures to the benefit of the bankrupt estate, it may well
be, as the district court feared, that it will be largely
consumed by attorneys' fees; yet the record reflects
37a
that substantial legal services were performed.
We therefore think that the decision should pro-
ceed from the legal considerations discussed in Parts
li and Ill hereof. If equity has a part in the resolution
of a question of this type--an issue on which we ex-
press no view--equity does not supply the answer
here.
REVERSED AND REMANDED.
Albert V. Bryan, Senior Circuit Judge, dissenting:
I would affirm on the discriminating opinion of
the District Judge, In Re: Golden Enterprises, Bank-
rupt, No. ST-B-73-6 (November 16, 1976).
Despite the recital of other reasons, the majority
decision actually turns on the single axis: that appel-
lee, the second mortgagee, failed to renew “during
bankruptcy" a request made during the arrangement
phase for a sequestration of rents for his benefit. The
term "bankruptcy" is used in its technical reference
to the stage of the case after adjudication of bankrupt-
cy upon failure of the arrangement plan.
I,
This point was initially made at trial by the ap-
pellants, but overruled by the District Judge for the
reason that the requirement of a second request would
have been the exaction of a procedure he deemed futile,
that is, useless as unnecessary "since that was already
being done", i.e., it had been sought and ordered by
the Bankruptcy Judge. But the majority terms this
statement erroneous because, although this had oc-
curred in the arrangement proceeding, the request
had not been renewed after the adjudication, hence
38a
not "during bankruptcy”. The facts, I think, sustain
the District Judge and reveal the majority as sacrificing
substance to form, for in regard to the request and
order, there was no such decisive break in the two
stages of the case as to warrant this sacrifice.
On May 4, 1973, the petition for an arrangement
was filed by Golden Enterprises and on June 27, 1973
Joe N. Cagle was appointed "standby trustee", that is,
to serve as trustee in bankruptcy in the event of the
failure of the arrangement plan, as authorized by the
statute, 11 USC 738. Thereafter, April 17, 1974, the
Debtor's attorney moved the Bankruptcy Judge "for
an Order appointing a named individual to function as
agentin collecting rental income of Golden Enterprises,
Inc. and applying the funds to those debts approved
tor payment by this Court". The next day the order
was entered naming Simon Joseph Golden as agent "to
collect rents and to apply the proceeds under the
supervision of the Court". Among the applications so
ordered was one tothe "5. Interest and principal on
secondary mortgages" which, of course, included ap-
pellee Butner's mortgage. Further, the agent was
directed not only to file monthly reports to the Court,
but also to the "second mortgage holders", of his re-
ceipts, expenditures and "accumulations".
No modification of this order occurred before
the adjudication of bankruptcy which was made 10
months later, February 14, 1975. Therein Joe N.
Cagle was appointed trustee of the property of the
Debtor. As heretofore noted, he had been named
earlier to occupy this position and did so throughout
the filing of the request for an agent to collect rents
and the use of them towards payment of the principal
and interest of the second mortgage. Highly signifi-
cant, moreover, is that the trustee after adjudication
was directed, inter alia, "to collect and receive all
39a
rents .. . and to hold and retain all moneys thus re-
ceived to the end that the same may be applied under
wnis or different orders of this Court. . . ." This in-
cluded, of course, the sequestration order--as a "dif-
ferent" order--for it emanated from the same court in
a component of the same suit.
True, Bankruptcy Rule 201 provides that the
appointment of a receiver (agent here) shall be ter-
minated when the trustee qualifies. However, this
termination does not wipe out the request for the se-
questration; nor does it annul the order for the ap-
plication of the rents to the second mortgage. Only
the collector is changed, but that change would not
alter the rights of a creditor which were fixed by an
order during the arrangement stage. The agent would
simply be supplanted by the trustee. The first order
has equal standing, by virtue of 11 USC 752, of any
order entered in a voluntary bankruptcy case after
adjudication, and a petition for an arrangement is the
equivalent of a petition for voluntary bankruptcy.
11 USC 752 and 778(a)(2). Thus this order remained
intact and no reassertion of it was demandable.
With deference | suggest that the majority mis-
conceives the operation of the arrangement provisions,
contending that what is ordered during that period is
vacated or nullified by the subsequent adjudication.
As just mentioned this is gainsaid by the statute,
§752, declaring that an order passed therein before ad-
judication, has the same standing as one passed in a
voluntary bankruptcy after adjudication. In truth,
there is but a single proceeding. The arrangement
phase is simply a prefatory consideration in relation
to bankruptcy. The same petition at once serves both;
the trustee for both is chosen at the commencement of
the arrangement; and both are simultaneously con-
sidered by the Bankruptcy Judge. Hence orders are
40a
frequently common to both.
For the foregoing reasons I cannot join in the
Il, majority opinion.
Appellee Butner is chided in the majority opinion
for not taking "formal action" to obtain foreclosure of
his mortgage by an adversary proceeding under Bank-
ruptcy Rule 701. Likewise, he is taken to task for not
filing an opposing answer to the trustee's application
to sell the property. Both of these reprovals are ex-
tinguished by the fact that, as the majority earlier
noted, Butner had already *sked for abandonment of
the property to him subject to prior mortgages. It was
in this context that he stated he would waive any claim,
as the majority would point up; manifestly, his busi-
ness judgment taught that the abandonment of the
property to him was more advantageous than the bene-
fits to be derived from the rentals. Instead of order-
ing abandonment, the trustee obtained authorization
to sell the property at public auction, which he did.
Surely, again, further action by Butner would have
been futile.
Ill.
Finally, the proposed opinion notices the Dis-
trict Judge's statement that "the Court finds no dif-
ficulty in determining that equity required that rents
collected under the circumstances of this case should
go to the secured lienholders rather than to unsecured
creditors". Rather than to dispose of the considera-
tions in the mind of the District Judge by simply re-
ferring to his failure :o articulate these equities, I
would remand tor a hearing on them. Particularly in
respect to equities, I would not charge Butner with
any success he may have had with the property after
he had bought it and it was out of the case.
4la 42a
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
Docket Nos. 77-1138 and 77-1151
Golden Enterprises, Inc., and William E. Butner v.
United States of America
and
Joe Cagle, Trustee in Bankruptcy for Golden Enter-
prises, Inc., etal. v. William E. Butner
ORDER
Upon consideration of the appellee tor a peti-
tion for rehearing, by counsel,
IT IS ORDERED that the petition for rehearing
is denied.
Entered at the direction of Judge Winter with
the concurrance of Judge Thomsen. Judge Bryan
dissents.
For the Court,
William K. Slate, II
Clerk
43a
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
Docket Nos. 77-1138 and 77-1151
Golden Enterprises, Inc., and William E. Butner v.
United States of America
and
Joe Cagle, Trustee in Bankruptcy for Golden Enter-
prises, Inc., etal. v. William E. Butner
ORDER
Upon consideration of a motion of the appellee,
for stay of mandate pending application to the United
States Supreme Court for a writ of Certiorari,
IT IS ORDERED that the motion is DENIED.
For the Court - by Direction.
William K. Slate, I
Clerk
44a
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