Petition — General Insurance Co. of America v. Oklahoma City Housing Authority

—_ ae Se al — ee ee ee

Inthe Supreme Court of the United States

OcTOBER TERM, 1977

GENERAL INSURANCE COMPANY OF AMERICA

Petitioner

. ERSUS

OKLAHOMA CITY HOUSING AUTHORITY. er a:

Respondents

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

TENTH CinCUIT

JUDSON S WoopRuF!

CHARLES J. Topp

JOHN N. HERMES

Fifth Floor, 100 Park Avenuc

Oklahoma City, Oklahoma 73102

Counsel for Petitioner

Of Counsel:

McArer, TArt, Mark, Bonp

Rucks & Wooprurr

A Professional Corporation

Fifth Floor, 100 Park Avenue

Oklahoma City, Oklahoma 73102

June, 1978

OLD LLLP PPP DOP DBP BD BOLL LM CODES OO - - -

UTTERBACK TYPESETTING CoO 519 W. Car OKLAHOMA CiTy Pw 238-S03C

; TABLE OF CONTENTS

PAGE

_ i “RCD SNE Read EL ae aeeels 1

ge EP A a SN eae ee 2

t Questions Presented ______ ee oe Pe aa N eR Teneo ae 2

Statutory Provisions Involved _... 3

Statement of the Case... 5

Reasons for Granting the Writ ____ PSE ao a 12

I. The Supreme Court must resolve the conflicts

; among the Courts of Appeals concerning the

jurisdiction of Federal erase ced Courts in

Chapter XI proceedings ieiiinhiaesdeas

A. The extent of jurisdiction of a Federal

Bankruptcy Court in a Chapter XI pro-

ceeding is of national importance... == 13

B. The Courts of Appeals are in conflict with

respect to the extent of the exclusive jur-

isdiction granted a a Court in

a Chapter XI proceeding _. aiioscakcagee. a

C. The Supreme Court must limit the juris-

diction of courts over actions collateral to

a Chapter XI bankruptcy proceeding _. 19

1. The Bankruptcy Court must be held to

possess exclusive jurisdiction to deter-

mine the liability of a debtor upon an

unliquidated claim 0 sad

no

The filing of a proof of claim in a bank-

ruptcy proceeding by a creditor sub-

mits the creditor to the jurisdiction of

the Bankruptcy Court on all matters

arising from the claim _ ea

TABLE OF CONTENTS CONTINUED

3. The liability of a debtor upon an un-

liquidated claim must not be deter-

mined in an action against the debtor’s

surety that is collateral to the bank-

ruptcy proceedings .........

II. The decision of the Tenth Circuit denying the

rights of the surety to contract balances be-

cause of the purported fraud of its principal

is in conflict with the applicable decisions of

the Oklahoma Supreme Court

A. The rights of a surety to contract balances

is a matter of national importance ___-

B. The Oklahoma Supreme Court limits the

liability of a surety to the strict terms of

his indemnity contract

III. The Supreme Court must grant certiorari to

require District Courts to avply Fed. R. Civ. P.

15(b) in a manner consistent with due process

_ § BRE NSS Bee

A. The Supreme Court must exercise its su-

pervisory powers to insure all parties re-

ceive due process of law

B. The Supreme Court must exercise its su-

pervisory powers to insure adherence to

the Federal Rules of Civil Procedure by

the Federal District Courts - a

IV. The decision of the Tenth Circuit is in conflict

with applicable decisions of the Supreme Court

of Oklahoma regarding the substantive rules of

law applied to this action

A. The Oklahoma District Court applied the

wrong measure of damages against Gen-

eral

PAGE

22

24

25

26

29

29

31

33

33

ooliinn

TABLE OF CONTENTS CONTINUED PAGE

B. The Oklahoma District Court failed to re-

quire the proof of all essential elements

of fraud as required by Oklahoma law 34

C. The Oklahoma District Court erroneously

permitted OCHA to recover from General

the attorney fees of a third hetaed defend-

ant impleaded by OCHA _ empaieinm e

| EES SIR iae a

Appendix:

1. Tenth Circuit Opinion — Jan. 13, 1978 . .. A-l

2. Oklahoma District Court Memorandum Opin

ion — April 30, 1975 - eile —

3. Oklahoma District Court Default Judgment —

October 7, 1974 . eC ST

4. Colorado idence Court Memorandum —

ion — August 11, 1975 . hprtiteinanadichignisinieae dae

5. Oklahoma City ed peu Proof of

Claim in alicia aid — Colorado ee

Court - sine 2 ee . A-40

6. Colorado ee Court — Order — No-

vember 5, 1974 . iiatevectnialiieentaetncdetonpasentisccee Ga

7. Tenth Circuit Order Vacating » specu

31, 1975 - daitiansricalin peciaels A-44

8. Performance Bond — October 25, 1972 . . A-46

9. Oklahoma District Court Judgment — June 15,

Sere = _. A-50

—jy—

TABLE OF AUTHORITIES

—_e—-_-

Cases PAGE

Barasch, In re, 439 F.2d 1393 (9th Cir. 1971) _. i6

Brankeroff-Faris Trust & Savings Co. v. Hill, 281 U.S.

GeeP CD sasiceteensianeiicaiie 30

Brotherhood of Railroad Trainmen v. Brown, “180

Okla. 487, 71 P.2d 742 (1937) _ sdeaieiehiiaien . &

Century Geophysical Corp. v. Cal. Bd. of Equalize-

tion, 564 F.2d 342 (9th Cir. 1977) 21

Copeland, In re, 391 F.Supp. i34 (D.Del. 1975) aff'd

in part and vacated in ven 531 F.2d 1195 (3rd Cir.

1976) roneuemensienie tastinaciain ‘ oe oe

intend Liability Assurance » Siieiian' Ltd. v.

Cannon, 173 Okla. 493, 49 P.2d 103 (1935) _ —

Erie R. Co, v. Tompkins, 304 U.S. 64 (1938) _.. s—séi244

Fuentes v. Shevin, 407 U.S. 67 (1972) _.. ss t—“<isé«séS*YCS

Generai Steei Tank Company, Inc., In re, 478 F.2d 294

(4th Cir. 1973) - — 23

Globe Const. Co. v. “Oklahoma City Housing Author-

ity, 571 F.2d 1140 (10th Cir. 1978) _ milled ase

Hamilton v. Telex Corp., 576 P.2d 769 (Okla. 1978). 36

Hardesty v. Andro west —Webster Division, 555 P. 2d

1030 (Okla. 1976) _ srepeauncinninigiiitiiaiinimiimeadaa as’ Se

Katchen v. Landy, 382 U.S. 323 (1968) . —— 5

Lockhart v. Garden City Bank & Trust Co., 116 F.2d

658 (2d Cir. 1940) 16

Loyd v. Stewart & Nuss, Inc., 327 F.2d 642, (9th Cir.

| ean , vinessistptoctialaegitipisaan ae

Mason v. Continental | Suppl Company, 99 Okla. 32,

225 Pac. 381 (1924) . ) a

New Haven v. National Steam Economizer Co., 79

Conn. 482, 65 Atl. 959 (1907) ' 34

—_—y—

AUTHORITIES CONTINUED PAGE

NYTCO Services, Inc. v. Hurley’s Grain Elevator Co.,

422 F.Supp. 114 (W.D. Tenn. 1976) ... = t—<Ct«COC

Rubin, In re, 378 F.2d 104 (3rd Cir. 1967) ss t—(itéi2C

Russell v. Flanagan, 544 P.2d 510 (Okla. 1975) 36

Sada Yoshinuma v. Oberdorfer Ins. Agency, 136 F.2d

460 (5th Cir. 1943) - 16

SEC v. American Trailer Rentals Co., 379 US. 594

(1965) _ 13

Slenderella Systems of Berkeley, Ine. \ v. . Pacific T. & T.

Co., 286 F.2d 488 (2d Cir. 1961) _ 16

Sniadach v. Family Finance Corp., 395 US. 337 (1969) 30

Stanndco Developers, Inc., In re, 534 F.2d 1050 (2d

Cir. 1976) . —_ 22

Steiger v. Commerce Acceptance of Oklahoma City,

Inc., 455 P.2d 81 (Okla. 1969) - ) ne 35

Stockman —- Company, In re, 447 F. 2d 387

(9th Cir. 1971) . ae ae Jae ; a

Texaco, Inc. v. Liberty National Bank & Trust Co. of

Oklahoma City, 464 F.2d 389 (10th Cir. 1972) . 19

United States v. American Surety ew 322 US.

96 (1944) _ 34

United States Fidelity & Guaranty Co. v. Gray, 106

Okla. 222, 233 Pac. 731 (1925) . some 27

Village of Canton v. Globe Indemnity Company, 201

App. Div. 820, 195 N.Y.S. 445 (1922) 34

Statutes

11 U.S.C.A. § 34 (1970), Bankruptcy Act § 16 . 3,22

11 U.S.C.A. § 35 (1970), Bankruptcy Act § 17 . 18

11 U.S.C.A. § 332 (f)(1) (1970) __. | i

11 U.S.C.A. §§ 701-799 (1970) | 12

11 U.S.C.A. § 711 (1970), Bankruptcy Act § 311 2, 3,

10, 14, 18, 19

11 U.S.C.A. § 714 (1970), Bankruptcy Act § 314 4,17

enttiinn

AUTHORITIES CONTINUED PAGE

2. 4 aR ere Se 2

EF ae ee ee 6, 24

40 U.S.C.A. §270(a) and (b) tsi‘ éitséC

Bankruptcy Rule 1l-44a_ ss 4, 8, 10, 20

Federal Rules Civil Procedure, Rule 15(b) 2, 4,

29, 31, 32

12 Okla. Stat. §936 (1971) 5 5, 35

61 Okla. Stat. § 113 (1978 Supp.) _. = t—éiaS!

Miscellanous

CoLLIER ON BaNnkKRuPTcy (14th ed. 1976) _._.._..._..14, 15,17

J. MacLacHLan, HANDBOOK oF THE LAW oF BANK-

RUPTCY 139 (1956) _ Se Sa 23

1B J. ~ gunn FEDERAL PRACTICE, para, 0419 13-5]

(1978) _ ianieiaes ee =F

REMINGTON ON Bankruptcy (6th ed. 1955) sist 15, 16

S. Seidman, “The Plight of the Secured Creditors in

Chapter XI,” 80 Comm. L.J. 343, 345 0

A. STEARNS, THE Law or Suretysuip (5th ed 1951) _ 22, 23

6 C. Wricut & A. MILuer, FeperAt PRActIce AND PRo-

CEDURE § 1491, at 453 (1971) . i ine 32

In the

Supreme Court of the United States

OcToBer TERM, 1977

No.

GENERAL INSURANCE COMPANY OF AMERICA,

Petitioner,

VERSUS

OKLAHOMA CITY HOUSING AUTHORITY, er At.,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

TENTH CIRCUIT

The petitioner, Genera! Insurance Company of Amer-

ica, respectfully prays that a writ of certiorari issue to

review the judgment and opinion of the United States

Court of Appeals for the Tenth Circuit entered in this

proceeding on January 13, 1978.

OPINIONS BELOW

The opinion of the Court of Appeals is reported in

Globe Const. Co. v. Oklahoma City Housing Authority, 571

F.2d 1140 (10th Cir. 1978), and appears in the Appendix

hereto (App. A-1). The opinion of the United States Dis-

trict Court for the Western District of Oklahoma in Cause

No. CIV-73-641-C rendered on April 30, 1975 is unreported

and appears in the Appendix hereto (App. A-9).

~ =

The judgment of the Court of Appeals for the Tenth

Circuit was entered on January 13, 1978. A timely petition

for rehearing en banc was denied on March 23, 1978, and

this petition for writ of certiorari was filed within 90 days

of that date. The jurisdiction of the Supreme Court is

invoked pursuant to 28 U.S.C. § 1254/1).

QUESTIONS PRESENTED

1. Whether the exclusive jurisdiction granted a fed-

eral bankruptcy court in a Chapter XI reorganization pro-

ceeding by Section 311 of the Bankruptcy Act, 11 U.S.C.A.

§ 711 (1970), extends to contract balances in the possession

of a third party claiming ownership to the funds.

2. Whether a federal district court has jurisdiction

to determine the liability of a bankrupt for a debt in an

action collateral to a Chapter XI proceeding brought by a

creditor against the surety of such bankrupt.

3. Whether a surety may be denied credit for the

completed work of the contractor against its liability on a

performance bond because of the purported fraud of the

contractor.

4. Whether Fed. R. Civ. P. 15(b) permits a party to

amend its pleadings at trial and immediately introduce

evidence on the new issue when no prior notice or oppor-

tunity to prepare a defense is provided to the opposing

party.

enliien

5. Whether the following issues are questions of law

or questions of fact under applicable Oklahoma law:

a. Whether a completing owner may recover liqui-

dated delay damages after terminating the contractor;

b. Whether fraud can be proven without evidence

of reliance upon misrepresentations or of resulting injury;

and

c. Whether an Oklahoma statute permits the award-

ing of attorney fees for parties against whom no claims

were made by the party ordered to pay the fees.

STATUTORY PROVISIONS INVOLVED

AMEND. 14, U. S. Constrrution:

“* * * nor shall any State deprive any person of life,

liberty, or property, without due process of law; * * *”

BANKRUPTCY ACT, SECTION 16, 11 U.S.C.A. $ 34

(1970):

“The liability of a person who is a co-debtor with, or

guarantor or in any manner a surety for, a bankrupt

shall not be altered by the discharge of such bankrupt.”

BANKRUPTCY ACT, SECTION 311, 11 U.S.C.A. § 711

(1970):

“Where not inconsistent with the provisions of this

chapter, the court in which the petition is filed shall,

for the purposes of this chapter, have exclusive juris-

diction of the debtor and his property, wherever

located.”

- on

BANKRUPTCY ACT, SECTION 314, 11 U.S.C.A. § 714

(1970):

“The court may, in addition to the relief provided

by section 29 of this title and elsewhere under this

chapter, enjoin or stay until final decree the com-

mencement or continuation of suits other than suits

to enforce liens upon the property of a debtor, and

may, upon notice and for cause shown, enjoin or stay

until final decree any act or the commencement or con-

tinuation of any proceeding to enforce any lien upon

the property of a debtor.”

BANKRUPTCY RULE 11-44a:

“(a) Stay of Actions and Lien Enforcement. A peti-

tion filed under Rule 11-6 or 11-7 shall operate as a

stay of the commencement or the continuation of any

court or other proceeding against the debtor, or the

enforcement of any judgment against him, or of any

act or the commencement or continuation of any court

proceeding to enforce any lien against his property, or

of any court proceeding, except a case nending under

Chapter 10 of this title, for the purpose of the rehabili-

tation of the debtor or the liquidation of his estate.”

RULE 15(b), FED. R. CIV. P.:

“(b) Amendments to Conform to the Evidence.

When issues not raised by the pleadings are tried by

express or implied consent of the parties, they shall

be treated in all respects as if they had been raised in

the pleadings. Such amendment of the pleadings as

may be necessary to cause them to conform to the evi-

dence and to raise these issues may be made upon

motion of any party at any time, even after judgment;

but failure so to amend does not affect the result of

the trial of these issues. If evidence is objected to at

online

the trial on the ground that it is not within the issues

made by the pleadings, the court may allow the plead-

ings to be amended and shall do so freely when the

presentation of the merits of the action will be sub-

served thereby and the objecting party fails to satisfy

the court th it the admission of such evidence would

prejudice him in maintaining his action or defense

upon the merits. The court may grant a continuance

to enable the objecting party to meet such evidence.”

12 Oxta. Strat. § 936 (1971):

“In any civil action to recover on an open account,

a statement of account, account stated, note, bill, nego-

tiable instrument, or contract relating to the purchase

or sale of goods, wares, or merchandise, or for labor or

services, unless otherwise provided by law or the con-

tract which is the subject of the action, the prevailing

party shall be allowed a reasonable attorney fee to be

set by the court, to be taxed and collected as cos‘s.”

STATEMENT OF THE CASE

Petitioner, General Insurance Company of America

(“General”), seeks a Writ of Certiorari to the United

States Court of Appeals for the Tenth Circuit (“Tenth

Circuit”) from a decision affirming the judgment of the

Honorable Stephen S. Chandler, Judge for the United

States District Court for the Western District of Oklahoma

(“Oklahoma District Court”). Judgment was rendered by

the Oklahoma District Court against General upon the

counterclaim of the defendant-respondent, Oklahoma City

Housing Authority (“OCHA”), a public corporate body.

The judgment was entered on the nerformance bond issued

to OCHA by General as the surety of the plaintiff, Globe

—6—

Construction Co. (“Globe”), a general contractor and a

Colorado corporation. The judgment against General in-

cluded an award to OCHA for the attorney fees of George

Seminoff, Wayne W. Bowman, and Albert W. Bode, part-

ners doing business as Seminoff-Bowman-Bode (“Archi-

tects”) that had been joined as Third-Party Defendants by

OCHA.

Globe was awarded a public construction contract by

OCHA which terminated the contract when the construc-

tion was more than ninety per cent completed. Globe filed

this action in the Oklahoma District Court, based upon the

diversity of citizenship of the parties and the amount in

controversy pursuant to 28 U.S.C. § 1331 (1970). Globe

sought to recover approximately $400,000.00 in contract

balances owing at the time of the termination. The con-

tract balances included $195,092.66 retained under the pro-

visions of the contract that permitted OCHA to withhold

ten per cent of all progress payments until the construction

was completed. OCHA counterclaimed against Globe scek-

ing liquidated damages provided by the contract, its costs

incurred in completing the project, and attorney fees. Less

than thirty days prior to trial, OCHA amended its counter-

claim to join General as a counterclaim defendant based

upon its obligations under the performance bond. OCHA

also named the Architects as third-party defendants seek-

ing indemnity from the claims made by Globe.

The mere statement of the chronology of proceedings

below will demonstrate the denial of due process to Gen-

eral and the confusion that currently exists among the

federal courts regarding the conflicting jurisdiction of the

wallen

bankruptcy court to other federal courts in pending col-

lateral proceedings.

On July 30, 1974, the trial of Globe’s complaint and

OCHA’s counterclaim commenced. In opening statement,

and without previous notice or allegation, OCHA’s attorney

declared his intent to prove the commission of fraud by

Globe. Over the objections of Globe and General, the trial

court denied a request for continuance. The first trial ses-

sion continued until August 2, 1974. On August 1, 1974,

the trial court made a “preliminary finding of fraud.” The

cause was continued until October 1, 1974.

On September 15, 1974, Globe’s chief trial counsel, a

California lawyer, withdrew without leave of court. On

October 1, 1974, Globe’s local (Oklahoma) counsel re-

quested leave to withdraw. The withdrawal was permitted

on October 2, and the trial proceeded with Globe's Presi-

dent in attendance (except for October 3) without the

assistance of any counsel. The President of Globe was not

permitted to cross-examine witnesses. The Oklahoma Dis-

trict Court also denied General’s motion for dismissal, since

its performance bond did not insure against fraud.

On October 3, 1974, Globe filed a petition for a Chap-

ter XI bankruptcy reorganization in the United States

District Court for the District of Colorado (“Colorado Dis-

trict Court”). The petition was assigned to a referee in

bankruptcy (“Bankruptcy Court”). On the schedule of

assets subsequently filed in the bankruptcy proceedings,

Globe listed OCHA as being indebted to Globe in the

amount of $601,404.00 in contract balances owing under

the construction contract.

callin

In the Oklahoma District Court, OCHA moved for

default judgment against Globe on October 3, 1974, be-

cause Globe was not represented by counse! and on that

day had no officer present in court.

On October 4, 1974, Globe’s President announced in

open court that Globe had filed a Chapter XI petition and

Suggested that the proceeding was stayed by Bankruptcy

Rule 11-44a. The Oklahoma District Court, without regard

to Bankruptcy Rule 11-44a, orally granted OCHA’s Motion

for Default Judgment. On October 7. 1974, default judg-

ment against Globe was entered in the amount of $427,-

504.00 (consisting of $177,504.00 for liquidated damages

and $250,000.00 as punitive or exemplary damages), plus

attorney fees, interest, and costs “to be fixed by the Court”

over the objection of General (App. A-33).

On November 5, 1974, upon the application of Globe,

the Bankruptcy Court enjoined OCHA from vroceeding in

the Oklahoma District Court against Globe or General for

a period of ninety days (App. A-42). Since Globe indemni-

fied General against General’s potential liability to OCHA,

the Bankruptcy Court found the Oklahoma proceedings

against General would adversely interfere with the ad-

ministration of the bankruptcy estate. On November 22,

1974, after the Colorado District Court refused to cnjoin

the Oklahoma District Court from continuing the proceed-

ings involving Globe and General, Globe filed a petition

with the Tenth Circuit to stay the Oklahoma District Court

proceedings. The Tenth Circuit ordered a stay pursuant to

Bankruptcy Rule 11-44a of the entire proceedings on No-

vember 25, 1974. The stay was modified on December 4,

ein

1974 to permit the action to proceed against General. On

January 31, 1975, the Tenth Circuit vacated the stay en-

tirely and directed the parties to pursue their remedies by

appeal (App. A-44).

On February 21, 1975, OCHA filed a proof of claim in

the Colorado Bankruptcy Court based upon the Globe de-

fault judgment of $427,504.00 ( App. A-40). Globe objected

te the allowance of OCHA’s claim and sought to set off

the contract balances owing by OCHA.

The Oklahoma District Court, having heard testimony

in November, 1974 (before the Tenth Circuit stay) and

February, 1975, rendered its judgment against General! on

April 30, 1975 by Memorandum Opinion (App. A-9). The

Opinion denied all of Globe’s claims asserted by General,

purported to make findings of fraud by Globe, found ma-

terial breaches of the contract by Globe and entered judg-

ment against General on its performance bond for the full

amount of OCHA’s claims. The judgment included an award

of attorney fees for the architects impleaded by OCHA.

The judgment was silent with resvect to the contract bal-

ances held by OCHA. General and Globe appealed the

April 30, 1975 judgment of the Oklahoma District Court

to the Tenth Circuit.

On May 30, 1975, after due notice to OCHA, the

Bankruptcy Court conducted an evidentiary hearing upon

OCHA’s claim and Globe's objections and offsets. OCHA

failed to appear, and the Bankruptcy Court received testi-

mony from a vice-president of Globe. On August 11, 1975,

the Bankruptcy Court issued its Memorandum Oninion dis-

allowing the claim by OCHA in view of setoffs owing to

|

—10—

Globe. The Bankruptcy Court also found that the October

7, 1974 default judgment against Globe had been entered

in violation of Bankruptcy Rule 11-44a and Section 311

of the Bankruptcy Act, 11 U.S.C.A. § 711 (1970), and de-

clared the judgment null and void (App. A-35). No appeal

from the Bankruptcy Court judgment was taken by OCHA.

Subsequently, the Bankruptcy Court affirmed the plan of

Globe on August 26, 1975, and all unsecured debts were

discharged.

On November 30, 1975, before briefs were to be filed

in Globe’s appeal from the Oklahoma District Court, OCHA

entered into a Stipulation and Release of Judgment with

Globe in which OCHA stipulated that the default judg-

ment entered against Globe on October 7, 1974 was null

and void. OCHA released the default judgment, expressly

reserving its rights and interests in the April 30, 1975 judg-

ment against General. The Stipulation and Release of Judg-

ment were filed in the Oklahoma District Court on De-

cember 1, 1975. On December 5, 1975, the Tenth Circuit

dismissed the appeal taken by Globe from that judgment.

On January 13, 1978, the Tenth Circuit issued its opin-

ion to which a Writ of Certiorari is sought by Genera].

The Tenth Circuit expressly found:

“The liability of General, as Surety, is joint and

several to the liability of the principal, Globe. The

power of a bankruptcy court to enjoin in personam

suits is confined to suits against the debtor, and there

is no jurisdiction to enjoin a suit brought to enforce

the personal liability of a guarantor of bonds secured

by a mortgage upon property owned by the debtor.”

(App. A-6). (Citations omitted: Court's emphasis. )

— }

The Tenth Circuit also found that the other issues as to

which General seeks review were all “questions of fact”

(App. A-5).

On January 26, 1978, General filed its Petition for Re-

hearing. After requesting briefing of the Petition by the

parties, the Tenth Circuit denied the Petition for Rehear-

ing on March 23, 1978.

On April 11, 1978, OCHA requested that the original

action between Globe and OCHA be placed on the docket

of the Oklahoma District Court for a pretrial conference.

Globe objected to the conference on the basis, inter alia,

that the Oklahoma District Court had no further jurisdic-

tion over Globe in view of the disallowance of OCHA’s

claim and the discharge by the Bankruptcy Court and the

statutory injunction set forth in 11 U.S.C.A. § 332(f )(1)

(1970), as well as the Stipulation and Release of Judg-

ment entered into by OCHA and Globe on November 30,

1975. After a full briefing of the issues, on June 6, 1978,

the Oklahoma District Court rendered a new judgment

against Globe for $250,000.00 in punitive damages. The Ok-

lahoma District Court declared that Globe was collaterally

estopped from denying liability by the prior judgment

against General (App. A-50).

On June 16, 1978, Globe filed its notice of anneal from

the June 15, 1978 District Court judgment.

Upon the basis of the foregoing facts, General re-

spectfully requests that the Supreme Court issue a Writ

of Certiorari to the Tenth Circuit for the reasons given

below.

—12—

REASONS FOR GRANTING THE WRIT

L

THE SUPREME COURT MUST RESOLVE THE

CONFLICTS AMONG THE COURTS OF APPEALS

CONCERNING THE JURISDICTION OF FEDERAL

BANKRUPTCY COURTS IN CHAPTER XI PRO.

CEEDINGS.

The Supreme Court must grant General’s petition for

writ of certiorari in order to secure uniformity in the

judgments of federal courts with respect to the national

rights provided by Chapter XI of the Bankruptcy Act,

11 U.S.C.A. §§ 701-799 (1970). The instant petition demon-

strates the extreme confusion that currently exists with

respect to the relevant bankruptcy law. As indicated in

the above Statement of the Case, four judgments have

been rendered by two different district courts upon identi-

cal issues of law and fact. The Oklahoma District Court

has rendered three different judgments! finding Globe lia-

ble to OCHA (App. A-33, A-9 and A-50). The Colorado

Bankruptcy Court has rendered a judgment that Globe is

not indebted to OCHA (App. A-35). The Bankruptcy Court

disallowed OCHA’s claims against Globe in the Chapter XI

proceeding.

The liability of General, as surety to Globe, under the

judgment of the Oklahoma District Court is dependent

upon the proper resolution of a single auestion: Which of

! The pm ace of the Oklahoma District Court include: (1 ) The de-

fault judgment against Globe on October 7, 1974: (2) the judgment

against General on April 30, 1975; and (3) the judgment against

Globe rendered on June 6, 1978.

—13—

the two district courts, Oklahoma or Colorado, had proper

jurisdiction to determine the liability of Globe to OCHA?

As indicated below, the Courts of Appeals are in conflict

concerning the extent of the jurisdiction granted the fed-

eral bankruptcy courts.

A. The Extent of the Jurisdiction of a Federal

Bankruptcy Court in a Chapter XI Proceeding

Is of National Importance.

Chapter XI of the Bankruptcy Act is currently the

most commonly used chapter of the Benkruptcy Act to re-

habilitate debtors. Chapter XI originally was designed to

provide a simple procedure for a composition of unsecured

creditors. See SEC v. American Trailer Rentals Co., 379

U.S. 594 (1965). However, the Chapter XI procedure has

become the dominant reorganization vehicle currently used

by debtors.

The Honorable Saul Seidman, Bankruptcy Judge for

the District of Connecticut and former President of the

National Conference of Bankruptcy Judges, has described

the growth in the use of the Chapter XI reorganization

in the following manner:

“In practice, Chapter XI has grown far beyond the

original concept of a simple composition with unse-

cured creditors for a mom-and-pop operation. Many

Chapter XI cases involve large publically-owned cor-

porations . . .” S. Seidman, The Plight of the Secured

Creditors in Chapter XI, 80 Conm. L.J. 343, 345

(1975).

anfiicn

Judge Seidman further observed that the current uncer-

tainty in the Bankruptcy Act and the new Bankruptcy

Rules with respect to Chapter XI proceedings “. . . has led

to confusion in the variety of decisions which the bank-

ruptcy judges are handing down.” Id. The reasons for the

confusion are described below.

B. The Courts of Appeals Are in Conflict With

Respect to the Extent of the Exclusive Juris-

diction Granted a Bankruptcy Court in a Chap-

ter XI Proceeding.

The validity of the Oklahoma District Court judg-

ment denying General, as indemnified surety and assignee

of Globe, the benefit of the contract balances held by

OCHA depends upon the ability of the Oklahoma District

Court to exercise jurisdiction over the contract balances

after Globe filed its Chapter XI petition. Although the

Tenth Circuit affirmed the Oklahoma District Court’s juris-

diction, the Courts of Appeals are in conflict over the ex-

tent of the exclusive jurisdiction granted bankruptcy courts

by § 311 of the Bankruptcy Act, 11 U.S.C.A. $711 (1970).

Section 311 states:

“Where not inconsistent with the provisions of this

chapter, the court in which the petition is filed shall,

for the purpose of this chapter, have exclusive juris-

diction of the debtor and his property, wherever lo-

cated.” Bankruptcy Act of 1898, Section 311, 11 US.

C.A. $711 (1970) (Emphasis added).

One leading treatise, CoLLieR On Bankruptcy (14th Ed.

1976) (hereinafter cited as “CoL.ier”), has interpre'ed

Section 311 to expand the jurisdiction of the bankruptcy

—15s—

courts beyond that granted under Chapters I-VII (provid-

ing for ordinary bankruptcy liquidation). Noting that there

is no provision comparable to Sectio.: 311 within Chapters

I-VII, Cottrer concludes that the bankruptcy court has

summary jurisdiction over property in the possession of

third parties in which the bankrupt claims ownership. The

summary jurisdiction of the bankruptcy court is limited

to a determination of the existence of substantial adverse

claims in the property by the third party. 8 CoLuier, at

para. 3.03, at 162-63.

Another treatise, REMmncton On BANKRUPTCY (6th Ed.

1955) (hereinafter cited as “REMINGTON”), maintains a

different position from Cottier. REMINGTON concludes that

Section 311 grants no greater jurisdiction in Chapter XI

than in Chapters I-VII. Remincron finds the jurisdiction

of the bankruptcy court to be limited to property in the

actual or constructive possession of the bankrupt. Rem-

INGTON further concludes that the bankruptcy court may

not exercise summary jurisdiction over adverse claims to

property held by third parties. 9 Remincton, at § 3574.

The Courts of Appeals are divided between the Cot-

LIER (ownership) position and the REMINGTON ( possession )

position. A summary of the division among the Courts of

Appeals is set forth below:

—16—

Courts of Appeals Adopting the

REMINGTON (possession) position:

Slenderella Systems of Berkeley, Inc. v. Pacific T. & T.

Co., 286 F.2d 488 (2d Cir. 1961) (denying bankruptcy court

summary jurisdiction over debtor’s telephone number).

Lockhart v. Garden City Bank & Trust Co., 116 F.2d

658 (2d Cir. 1940) (chattel mortgagee entitled to repossess

chattels during Chapter XI).

Sada Yoshinuma v. Oberdorfer Ins. Agency, 136 F.2d

460 (Sth Cir. 1943) (state appointed receiver has superior

claim to assets than Chapter XI estate).

In re Barasch, 439 F.2d 1393 (9th Cir. 1971) (denying

bankruptcy court summary jurisdiction over disputed

claims to community property in California).

Loyd v. Stewart & Nuss, Inc., 327 F.2d 642 (9th Cir.

1964) (denying summary jurisdiction of bankruptcy court

to award debtor retained contract funds held by property

owner).

Globe Const. Co. v. Oklahoma City Housing Authority,

571 F.2d 1140 (10th Cir. 1978) (pending determination on

General's Petition for Writ of Certiorari herein).

See also NYTCO Services, Inc. v. Hurley’s Grain Ele-

vator Co., 422 F.Supp. 114 (W.D. Tenn. 1976) (recogniz-

ing division among circuits and denying summary juris-

diction of bankruptcy court to proceeds of sale of goods

in the possession of field warehousing company ).

=s

Courts of Appeals Adopting the

COLLIER (ownership) Position:

In re Rubin, 378 F.2d 104 (3d Cir. 1967) (affirming

bankruptcy court’s summary jurisdiction over sales routes

of debtor).

In re Copeland, 391 F.Supp. 134 (D.Del. 1975), aff'd

in part and vacated in part, 531 F.2d 1195 (3d Cir. 1976)

(affirming bankruptcy court order to turn over stock cer-

tificates pledged to creditor).

In re Stockman Development Company, 447 F.2d 387

(9th Cir. 1971) (affirming summary jurisdiction of bank-

ruptcy court to order reclamation of personal property

seized by county sheriff).

In In re Stockman Development Company, supra, the

Ninth Circuit expressly indicated that its decision would

conflict with that Circuit's own opinions in In re Barasch,

supra, and Loyd v. Stewart & Nuss, Inc., supra. The Ninth

Circuit defended its adoption of the CoLirer position by

referring to the authority granted a bankruptcy court under

Section 314 of the Bankruntcy Act, 11 U.S.C.A. § 714 (1970):

“As additional evidence that the Chapter XI juris-

diction was not intended to be restricted to a theory of

possession, Section 314, 11 U.S.C.A. Sec. 714 expressly

gives the Bankruptcy Court authority to protect assets

by injunction and to stay foreclosure proceedings—

not just assets in the possession of the bankrupt.

“The cases in this circuit on the point appear to be

in some disarray.” In re Stockman Development Com-

pany, 447 F.2d 387, 390 (9th Cir. 1971).

—18—

General respectfully submits that the CoLLrer position

is the better reasoned. One of the purposes of the Bank-

ruptcy Act is to place the property of the debtor under

the exclusive control of one court for proper distribution.

Congress has recently amended the Bankruptcy Act to ex-

pand the exclusive jurisdiction of the bankruptcy courts.

See Bankruptcy Act, Section 17, 11 U.S.C.A. § 35 (1970)

(providing exclusive jurisdiction in bankruptcy courts to

determine the nondischargeability of debts for fraud). Re-

ducing the number of courts that are involved in proceed-

ings collateral to the bankruptcy proceeding will reduce

the opportunity for conflict and inconsistent findings among

different courts as have arisen in the instant case. Central-

izing the authority to resolve claims against the debtor

would be more efficient. Finally, the centralization of au-

thority in bankruptcy courts will reduce the chances for

injustice. ’

In the instant case, the Tenth Circuit failed to uphold

the jurisdiction of the bankruptcy court over the contract

balances held by OCHA. Consequently, the courts in two

different districts awarded the contract balances to differ-

ent parties. The CoL.ier interpretation of Section 311 of the

Bankruptcy Act would have avoided this anomalous result.

The Supreme Court has never interpreted Section 311

of the Bankruptcy Act, 11 U.S.C.A. $711 (1970).

The Supreme Court must issue a writ of certiorari in

this cause and resolve the conflict among the Courts of Ap-

peals upon the extent of the exclusive jurisdiction granted

the bankruptcy courts under Section 311 of the Bankruptcy

Act.

—19—

C. The Supreme Court Must Limit the Jurisdiction

of Courts Over Actions Collateral to a Chapter

XI Bankruptcy Proceeding.

1. The bankruptcy court must be held to pos-

sess exclusive jurisdiction to determine the

liability of a debtor upon an unliquidated

claim.

The Supreme Court must grant certiorari to secure

uniformity in the jurisdiction and judgments of federal

courts. The Tenth Circuit erroneously found the Oklahoma

District Court, rather than the Colorado Bankruptcy Court,

to have jurisdiction to determine the liability of Globe

(bankrupt) on the unliquidated claims of OCHA during

the pendency of the bankruptcy proceedings. The claims

of OCHA against Globe and General were unliquidated at

the time that Globe filed its Chapter XI petition. The

claims of OCHA had not been reduced to a surn certain

by agreement of the parties or judgment of a court.

The Supreme Court must find that the Colorado Bank-

ruptcy Court had exclusive jurisdiction to determine the

liability of Globe upcn all claims unliquidated at the time

of the filing of the Chapter XI vetition. The intent of Con-

gress to grant the bankruptcy court exclusive jurisdiction

over the debtor is plainly stated in Section 311 of the Bank-

ruptcy Act, 11 U.S.C.A. § 711 (1970) (discussed in nart I.B.

supra). Section 311 provides the bankruptcy court with

“. .. exclusive jurisdiction of the debtor and his property,

wherever located.” Id. The jurisdiction granted by this

section must extend to the determination of all unliqui-

dated claims against the debtor. See Texaco, Inc. vy. Lib-

niin.

erty National Bank & Trust Company of Oklahoma City,

464 F.2d 389 (10th Cir. 1972) (reversing judgment against

debtor entered in proceeding collateral to bankruptcy);

8 CoLuigRr, at para. 3.20.

The exclusive jurisdiction of the Colorado Bankruptcy

Court over OCHA'’s claims against Globe is also demon-

strated by new Bankruptcy Rule 11-44(a). This rule en-

joins “the continuation of any court... proceeding against

the debtor . . .” Bankruptcy Rule 11-44(a). The stay pro-

vided by the rule becomes effective automatically upon

the filing of a petition for relief under Chapter XI and

the giving of notice of the filing. 14 Couier, at para. 11-

44.02. Section 311 and Bankruptcy Rule 11-44(a) have been

construed to preclude creditors from pursuing their claims

against the bankrupt-debtor in any forum apart from the

bankruptcy court without first seeking relief from the auto-

matic stay before the bankruptcy court. 8 CoLLieEr, at para.

3.20; 14 CoLurer, at para. 11-44.02.

In the instant case, the Oklahoma District Court failed

to respect the exclusive jurisdiction of the bankruptcy

court. The Oklahoma District Court first entered a default

judgment against Globe itself, which was void beyond

question and subsequently released by OCHA. Thereafter,

the Oklahoma District Court made an independent deter-

mination of the liability of Globe in order to determine

the vicarious liability of General to OCHA. The result has

been the entry of conflicting judgments.

The Supreme Court must grant certiorari in order to

resolve the conflicting judgments between the Colorado

Bankruptcy Court and the Oklahoma District Court.

online

2. The filing of a proof of claim in a bank-

ruptcy proceeding by a creditor submits the

creditor to the jurisdiction of the bank-

ruptcy court on all matters arising from

the claim.

OCHA consented to the jurisdiction of the Colorado

Bankruptcy Court when it filed its proof of claim in the

bankruptcy proceeding. The consent to the jurisdiction of

the bankruptcy court extends to the determination of all

objections and counterclaims arising from the filed claim.

2 CoLuigr, at para. 23.08[5}).

This Court has expressly held that a creditor is sub-

ject to the jurisdiction of the bankruptcy court upon all

counterclaims arising from the claim filed by the creditor

in the bankruptcy proceedings. Katchen v. Landy, 382 U.S.

323 (1966) (creditor bound by bankruptcy court determi-

nation that he had received a voidable vreference). In

Katchen this Court held:

“More specifically, a creditor who offers a proof of

claim and demands its allowance is bound by what is

judicially determined, and if his claim is rejected, its

validity may not be relitigated in another proceeding

on the claim.” Id., at 334 (Citations omitted). Accord,

Century Geophysical Corp. v. Cal. Bd. of Equalization,

064 F.2d 342 (9th Cir. 1977) (action by creditor on

claim disallowed by bankruptcy court barred by res

judicata); 1B J. Moore, Fenerat Practice, para. 0.419

3-1] (1978).

OCHA submitted to a determination by the Colorado

Bankruptcy Court of its claims against Globe. OCHA must

not be permitted to litigate that liability in another pro-

ceeding, collateral to the bankrupicy court, against General.

—,

3. The liability of a debtor upon an unliqui-

dated claim must not be determined in an

action against the debtor’s surety that is

collateral to the bankruptcy proceedings.

The Oklahoma District Court must be precluded from

determining the liability of Globe upon OCHA’s unliqui-

dated claim in an action against General. The liability of

General, as surety to Globe, arises from the alleged non-

performance by Globe, its principal, of the construction

contract. A. STEARNS, THE Law or SurREtysHIP, § 1.1 (5th

Ed. 1951). The performance of Globe should be determined

by the court having proper jurisdiction over Globe before

the liability of General is determined in a collateral pro-

ceeding.

In contrast, a creditor may be permitted to proceed

against the debtor’s surety in a collateral proceeding upon

liquidated claims. Section 16 of the Bankruptcy Act, 11

U.S.C.A. § 34 (1970), provides that the discharge of a bank-

rupt does not affect the liability of the bankrupt’s surety.

A discharge in bankruptcy does not exonerate the bank-

rupt from a liquidated debt, but only provides him with

a personal defense against the creditor. Section 16 limits

this personal defense for the sole benefit of the bankrupt.

The surety remains liable uvon a liquidated debt because

the underlying debt is undisturbed. 1A Co.uzer, at para.

16.02. For this reason, creditors may proceed against the

debtor’s surety on a liquidated debt during the pendancy

of the bankruptcy, e.g., In re Stanndco Developers, Inc.

534 F.2d 1050 (2d Cir. 1976) (state court proceeding al-

lowed against surety’s bond), or after the discharge of the

=~ =

bankrupt. E.g., In re General Steel Tank Company, Inc.,

478 F.2d 294 (4th Cir. 1973) (discharge does not affect lia-

bility of surety on bond).

The Supreme Court must hold, however, that a credi-

tor may not proceed against a debtor’s surety in an action

collateral to the bankruptcy upon an unliquidated claim.

The bankruptcy court has exclusive jurisdiction to deter-

mine the liability of the debtor on unliquidated claims.

The liability is determined by the bankruptcy court in its

consideration of allowing or disallowing the claim. If the

claim is allowed, the amount of the claim is determined

and becomes liquidated. After, but only after a creditor’s

claim is allowed (i.e., is liquidated) can he proceed against

the surety.

If the claim is disallowed by the bankruptcy court

upon its merits, as it was here, the underlying debt of the

bankrupt is exonerated. The exoneration of the bankrupt

arises from the judicial determination by the bankruptcy

court that no debt exists between the bankrupt and credi-

tor. Therefore, the disallowance is an adjudication upon

the merits of the debt underlying the claim. Katchen v.

Landy, 382 U.S. 323 (1966). The disallowance of the claim

by the bankruptcy court is also res judicata between the

parties. Therefore, the creditor is collaterally estopped from

pursuing a disallowed claim against the surety of the bank-

rupt in a subsequent action. 1B J. Moore, FepERAL PRAc-

Tick, para. 0.419[3.-5] (1978); A. Srearns, THe LAw oF

SURETYSHIP § 6.43 (5th ed. 1951); J. MACLACHLAN, HANp-

BOOK OF THE LAW or Bankruptcy 139 (1956). OCHA’s

claim against Globe was disallowed upon its merits by the

—24—

Colorado Bankruptcy Court, and OCHA did not appeal.

OCHA is collaterally estopped to pursue remedies against

Globe’s surety. General is entitled to be exonerated from

all liability to OCHA because General’s principal has been

exonerated. The judgment of OCHA against General must

be set aside.

The Supreme Court must grant certiorari to prevent

future conflicts between district courts that attemnt to de-

termine the liability of a surety upon unliquidated claims

against a bankrupt-principal during the pendancy of the

bankruptcy proceedings.

II.

THE DECISION OF THE TENTH CIRCUIT DE-

NYING THE RIGHTS OF THE SURETY TO

CONTRACT BALANCES BECAUSE OF THE PUR-

PORTED FRAUD OF ITS PRINCIPAL IS IN CON.

FLICT WITH THE APPLICABLE DECISIONS OF

THE OKLAHOMA SUPREME COURT.

Even if this Court should determine that the Okla-

homa District Court, and not the Colorado Bankruptcy

Court, had jurisdiction, certiorari must nevertheless be

granted to correct an error made with respect to an im-

portant issue of state law. The action was brought in fed-

eral court based upon the diversity of citizenship of the

parties and the amount in controversy. 28 U.S.C. § 1331

(1970). In a diversity action, state law must be applied

to the substantive issues of law. Erie R. Co. y. Tompkins,

304 U.S. 64 (1938). Therefore, the law of Oklahoma must

be applied to determine the rights of General to the con-

tract balances held by OCHA.

—25—

The Tenth Circuit affirmed the decision of the Okla-

homa District Court that denied General the benefit of the

contract balances because of the purported fraud of Globe.

The effect of the Tenth Circuit’s opinion is to make Gen-

eral an indemnitor of Globe’s fraud, even though General’s

performance bond did not indemnify against fraud (App.

4-46). General indemnified OCHA against the uncompleted

work of Globe and was entitled to full credit for all com-

pleted work. The Oklahoma District Court granted OCHA

a windfall at the expense of General. The Tenth Circuit

affirmed this unjust enrichment of OCHA. The decision of

the Tenth Circuit is in conflict with the applicable decisions

of the Supreme Court of Oklahoma.

A. The Rights of a Surety to Contract Balances Is

a Matter of National Importance.

The Tenth Circuit’s denial of a surety’s right to con-

tract balances will have a substantial adverse impact upon

the national construction industry. Sureties necessarily and

justifiably rely upon their rights to retainages, progress

payments, and other contract balances in assessing the risks

that they are undertaking through their performance and

payment bonds. The assessment of these risks affect their

determination to issue indemnifying bonds and the amount

of premiums charged for the bonds.

If sureties are denied their historically protected

rights, the risks imposed upon the sureties would be greatly

increased. As a result, the number of bonds that are issued

would probably be reduced, and premium costs would most

certainly be substantially increased, with an immediate and

—26—

adverse impact on the ability of public entities to construct

buildings for the public good. All major public construction

contracts require performance and payment bonds. E.g.,

Miller Act, §§ 1 and 2(b), S.C.A. §§ 270a and b (1970);

61 Okla. Stat. § 113 (1978 Supp.). Either a significant re-

duction in the amount of construction, or a further increase

in today’s spiraling construction costs, would seriously ag-

gravate an already troubled national economy.

The importance of the present issue is further indi-

cated by the fact that the performance bond in the instant

case is in the standard form currently used by the United

States Department of Housing and Urban Development

(“HUD”). The HUD forms were used because federal fi-

nancing was provided to the project. Therefore, the per-

formance bond erroneously construed by the Tenth Circuit

is currently in use throughout the United States.

B. The Oklahoma Supreme Court Limits the Lia-

bility of a Surety to the Strict Terms of His

Indemnity Contract.

General may not be denied its rights to the contract

balances held by OCHA because of the purported fraud

by Globe. The judgment of the Oklahoma District Court

does not specify the basis upon which General was denied

credit for the contract balances held by OCHA. In the judg-

ment against General, the Oklahoma District Court entered

findings of fraud against Globe. In a single conclusory sent-

ence, the District Court found that General “._ . should have

and recover nothing as against the defendant [OCHA].”

(App. A-25). OCHA made extensive claims during trial that

—27—

the contract balances were forfeited by reason of Globe's

purported fraud. General may only assume that the Okla-

homa District Court held that the purported fraud of the

principal caused the forfeiture of the rights of the surety

to the contract balances. The Tenth Circuit affirmed the

judgment of the Oklahoma District Court without expressly

considering this issue.

The following discussion is submitted upon the as-

sumption, in arguendo, that the purported fraud of Globe

was properly found.?

The Oklahoma Supreme Court has consistently held

that a bond is not to be construed to extend the liability

of the surety beyond the terms of the contract. E.g., United

States Fidelity & Guaranty Co. v. Gray, 106 Okla. 222, 233

Pac. 731 (1925) (obligations of surety discharged because

of the failure to give notice of pvrincipal’s default as re-

quired by the bond).

In an action analogous to the instant case, the Su-

preme Court of Oklahoma denied the attempt to extend

the liability of the surety beyond that set forth in the con-

tract. In Employers’ Liability Assurance Corporation Ltd.

v. Cannon, 173 Okla. 493, 49 P.2d 10” (1935), property

owners sued a surety to collect unpaid workmen's com-

* General must emphasize its disagreement with the trial court's findings

of fraud against Globe. In 6: Sane of subsequent issues, General

tes that the determination of fraud was upon surprise

allegations made for the first time during the trial. The trial court

denied Globe and General any opportunity to effectively meet these

allegations. Furthermore, the finding of fraud was erroneous on the

merits because of the total failure of proof of at least two essential

elements of that cause of action.

—23—

pensation insurance premiums. The judgment against the

surety was reversed by the Oklahoma Supreme Court be-

cause the bond indemnified only “. . . indebtedness for

labor and material furnished.” The surety was held to have

no liability beyond the strict terms of the contract. The

Oklahoma Supreme Court stated:

“The liability of the surety in this case arises from

the terms of the bonds and statute requiring the same.

It cannot be extended beyond the limits of a fair and

liberal interpretation thereof.” Id., 49 P.2d at 105.

The decision of the Tenth Circuit that affirmed the

denial to General of the contract balances effectively ex-

tended the liability of General to indemnify against the

fraud of the contractor. The performance bond issued by

General to OCHA did not indemnify against fraud. Under

Oklahoma law, liability of a surety may not be extended

by construction or implication beyond the terms of the in-

demnity agreement.

This Court must issue a writ of certiorari to correct

the serious error of state law that has been made by the

Tenth Circuit.

en "

ere ee

—29-——

Il.

THE SUPREME COURT MUST GRANT CER-

TIORARI TO REQUIRE DISTRICT COURTS TO

APPLY FED. R. CIV P. 15(b) IN A MANNER CON.

SISTENT WITH DUE PROCESS OF LAW.

A. The Supreme Court Must Exercise Its Super-

visory Powers to Insure All Parties Receive Due

Process of Law.

The decision by the Oklahoma District Court permit-

ting OCHA to amend its causes of action to include fraud,

affirmed by the Tenth Circuit, denied General due process

of law. The proceedings departed from the two funda-

mental precepts of due process: (1) Prior notice of all

claims, and (2) an opportunity to present a defense. Both

of these prerequisites to justice were denied General.

At the time of trial, General had no prior notice of

the claims of fraud by OCHA. No allegation of fraud was

contained in any pleadings or pretrial statement. The first

notice of the fraud allegations was given in the opening

statement of OCHA’s counsel at trial. The Oklahoma Dis-

trict Court permitted OCHA to cross-examine witnesses and

introduce other evidence of fraud during the initial days of

trial. General, having no prior notice of the fraud claims,

had no opportunity to prepare a defense against the claims.

After the first three days of trial, the Oklahoma District

Court made “preliminary” findings of fraud. The Oklahoma

District Court precluded all opportunity by General to pre-

sent a defense to the fraud claims of OCHA by subse-

quently entering on October 7, 1974, a default judgment

for fraud against Globe. The earlier findings of fraud

—30—

against Globe were incorporated into the judgment against

General.

The Supreme Court has expressly recognized that the

opportunity to present a defense is guaranteed by the due

process clause of the 14th Amendment to the United States

Constitution. In Brinkerhoff-Faris Trust & Savings Co. v.

Hill, 281 U.S. 673 (1930), this Court considered the due

process clause in an action concerning local property tax

assessment. The plaintiff had brought suit to enjoin the

assessment of a property tax relying upon a decision of

the Missouri Supreme Court that the State Tax Commis-

sion was without authority to grant the relief that the tax-

payer requested. The Missouri Supreme Court reversed its

prior decision and confined the plaintiff to the sole remedy

of appealing to the State Tax Commission. By the time

the Missouri Supreme Court rendered its decision, plain-

tiff’s time for appeal to the Commission had elapsed. Plain-

tiff’s request for review by this Court was granted since

the plaintiff was precluded from al] remedies without ever

having the opportunity to present a defense. This Court

reversed the Missouri Supreme Court and declared the

plaintiff was guaranteed the right to present a defense by

the due process clause of the 14th Amendment. This Court

stated:

“It is plain that the practical effect of the judgment

of the Missouri court is to deprive the plaintiff of

property without affording it at any time an oppor-

tunity to be heard in its defense.” Id., at 678 (Emphasis

added). Cf. Sniadach v. Family Finance Corp., 395 US.

337 (1969) (Wisconsin statute permitting prejudgment

garnishment of wages without prior notice or hear-

—31—

ing denies due process of law); Fuentes v. Shevin, 407

U.S. 67 (1972) (Florida prejudgment replevin statute

permitting repossession of chattels without prior no-

tice or hearing denies due process of law).

The practical effect of the decisions of the Oklahoma

District Court was to deny General any opportunity to

present a defense to the claims of fraud against its princi-

pal, Globe.* This Court must grant certiorari to provide

General with due process of law as guaranteed by the 14th

Amendment to the federal Constitution.

B. The Supreme Court Must Exercise Its Super-

visory Powers to Insure Adherence to the

Federal Rules of Civil Procedure by the Fed-

eral District Courts.

The Oklahoma District Court allowed OCHA to amend

its pleadings and present evidence in violation of Fed. R.

Civ. P. 15(b). The Oklahoma District Court permitted

OCHA to amend its pleadings to state a cause of action

for fraud during the conduct of the trial. The decision of

the Oklahoma District Court was made without reference

to Rule 15(b), Fed. R. Civ. P.

The Supreme Court has never interpreted Rule 15(b),

Fed. R. Civ. P. One leading authority on the Federal Rules

* The default judgment against Globe for fraud was declared null and

void by the Bankruptcy Court and released by the parties. On June 6,

1978, the Oklahoma District Court rendered a final judgment of fraud

against Globe on the basis that Globe was collaterally estopped by the

finding of fraud made in the judgment against General. However, the

judgment against General was based upon the first (void) default judg-

ment against Globe. The circular reasoning of the Oklahoma District

Court has denied General and Globe any ability to defend against the

fraud charges.

—32—

of Civil Procedure has described the purpose of the rule

to permit amendments to pleadings during trial when ob-

jections are made to evidence. Although amendments are

to be freely allowed under the Rule, the authors conclude

that the court must not allow the amendment if the op-

posing party will be prejudiced in his defense of the action.

6 C. Wricut & A. MILLER, FEDERAL PRACTICE AND PROCEDURE,

$ 1491, at 453 (1971). The authors svecifically admonish:

“Of course, if a court acts arbitrarily and capriciously

in granting leave to amend under Rule 15(b), it may

constitute a violation of due process.” Id., at 455.

The allowance of the amendments by OCHA claiming

fraud substantially prejudiced the rights of General. Hav-

ing no opportunity to prepare or present a defense, judg-

ments were entered against General. Execution upon these

judgments will deprive General of substantial property

without due process of law.

The Supreme Court must grant certiorari to supervise

the conduct of federal district courts. The Supreme Court

must require district courts to apply Rule 15(b), Fed. R.

Civ. P., in a manner consistent with the due process clause

of the i4ih Amendment to the federai Constitution.

—33—

IV.

THE DECISION OF THE TENTH CIRCUIT IS IN

CONFLICT WITH APPLICABLE DECISIONS OF

THE SUPREME COURT OF OKLAHOMA RE-

GARDING THE SUBSTANTIVE RULES OF LAW

APPLIED TO THIS ACTION.

The judgment rendered by the Oklahoma District

Court conflicts with applicable decisions of the Supreme

Court of Oklahoma. The law of Oklahoma is controlling

since the action is based upon diversity of citizenship.

The Tenth Circuit refused to review several substan-

tive errors of law made by the Oklahoma District Court.

The Tenth Circuit stated:

“Many of the matters raised by General Insurance

on appeal concern what we deem to be questions of

fact which were resolved by the trial judge on the

basis of conflicting evidence.” (App. A-5).

General respectfully submits that the following issues

are questions of law. The decision of the Tenth Circuit

was error.

A. The Oklahoma District Court Applied the

Wrong Measure of Damages Against General.

Even if the judgment against General was otherwise

proper, the trial judge apnlied the wrong measure of dam-

ages against General. The Sunreme Court of Oklahoma has

declared, as a matter of law. that an owner may only re-

cover his costs of completing construction when he assumes

control of the construction. Mason v. Continental Supply

Company, 99 Okla. 32, 225 Pac. 381 (1924) (contractor

=

abandons project); Accord, New Haven v. National Steam

Economizer Co., 79 Conn. 482, 65 Atl. 959 (1907) (owner

terminates contract and completes construction); Village

of Canton v. Globe Indemnity Company, 201 App. Div. 820,

195 N.Y.S. 445 (1922) (contractor abandons project). In

Mason vy. Continental Supply Company, supra, the Supreme

Court of Oklahoma reversed an award of liquidated dam-

ages granted to a completing owner. See also, United States

v. American Surety Company, 322 U.S. 96 (1944) (govern-

ment-owner terminating contract and completing construc-

tion may recover only cost of completion).

The Oklahoma District Court awarded OCHA judg-

ment for the liquidated damages provided by the contract

from the contract completion date to the date of Globe's

termination by OCHA and thereafter to the date OCHA

completed construction. OCHA was limited by Oklahoma

law to recovering liquidated damages only to the date of

termination, together with its costs of completion, a much

smaller amount. The decision of the Oklahoma District

Court was error as a matter of law.

B. The Oklahoma District Court Failed to Require

the Proof of All Essential Elements of Fraud

as Required by Oklahoma Law.

OCHA did not prove all of the essential elements of

fraud as required by Oklahoma law. The Suvreme Court

of Oklahoma has expressly required clear and convincing

proof of: (1) reliance upon an intentional misrepresentation

and (2) injury resulting from that reliance. Both reliance

and injury, along with other elements, must be proven

ee tl ee ea, SE

i,

to establish fraud. The absence of a single element essential

for fraud is fatal to the cause of action. Steiger v. Com-

merce Acceptance of Oklahoma City, Inc., 455 P.2d 81

(Okla. 1969) (fraud in the inducement of contract not

proven); Brotherhood of Railroad Trainmen v. Brown, 180

Okla. 487, 71 P.2d 742 (1937) (fraud in obtaining a con-

tract not proven).

OCHA did not offer one iota of evidence that it had

relied upon any misrepresentations of Globe or that any

purported fraud by Globe had resulted in injury. The judg-

ments of the Oklahoma District Court finding fraud by

Globe were erroneous as a matter of law.

C. The Oklahoma District Court Erroneously Per-

mitted OCHA to Recover From General the

Attorney Fees of a Third Party Defendant

Impleaded by OCHA.

The Oklahoma District Court wrongfully permitted

OCHA to recover from General the attorney fees incurred

by an architectural firm joined as a third party defendant

by OCHA. Globe had made no claim against the architects.

OCHA joined them to seek indemnity from Globe's claims

against OCHA. The architects prevailed in their defense to

the third-party complaint. Purportedly acting pursuant to

an Oklahoma statute, 12 Okla. Stat. § 936 (1971). the Ok-

lahoma District Court assessed the attorney fees of the

architects against General, as Globe's surety.

OCHA was not entitled to recover the attorney fees

of the third-party defendants against General. The Su-

preme Court of Oklahoma has declared that the Oklahoma

= =

statute relied upon by OCHA does not apply to contracts

for labor and materials, which was the basis of Globe’s

claims. Russell v. Flanagan, 544 P.2d 510 (Okla. 1975) (con-

tract for servicing sewer line); Hamilton v. Telex Corp.,

576 P.2d 769 (Okla. 1978) (contract for services). Further-

more, ‘.1e Supreme Court of Oklahoma has held that the

Oklahoma statute permits only the awarding of attorney

fees against parties who were in direct opposition to the

prevailing party. Hardesty v. Andro Corp.—Webster Divi-

sion, 555 P.2d 1030 (Okla. 1976) (suit involving owner-

contractor, subcontractor, and manufacturer). Therefore,

the Oklahoma District Court erroneously permitted OCHA

to recover against General the attorney fees awarded to

the architects. The error of the Oklahoma District Court

was an error of law.

For the reasons given above, the Supreme Court should

grant certiorari and reverse or summarily vacate the de-

cision o: the Tenth Circuit that is in conflict with applicable

decisions of the Supreme Court of Oklahoma.

Preuss

a ee

~~ ae

—37—

CONCLUSION

For the reasons given above, General respectfully

prays that the Supreme Court issue a writ of certiorari

for the United States Court of Appeals for the Tenth Cir-

cuit to review and consider the merits of petitioner’s claims,

or to vacate summarily the decision of the Tenth Circuit

and remand for further consideration in view of the de-

cision of the Colorado Bankruptcy Court entered subse-

quent to the perfecting of the appeal before the Tenth

Circuit.

Respectfully submitted,

JUDSON S. WooprurFr

CHARLES J. Topp

JOHN N. HERMES

Fifth Floor, 100 Park Avenue

Oklahoma City, Oklahoma 73102

Counsel for Petitioner

June, 1978

APPENDIX

i eS |

Ne ee eee fe ee ne De

|

INDEX

TO THE APPENDIX

PAGE

1. Tenth Circuit Opinion — Jan. 13,1978 ss A-

. Oklahoma District Court Memorandum —

ion — April 30, 1975 - tnt . A-9

. Oklahoma District Court Default t Judgment —

October 7, 1974 . Selita sel . A-33

. Colorado Bankruptcy C Court Memorandum neni

ion — August 11, 1975 _ pilicnemnitninianinceiticcenney GRD

. Oklahoma City <r Aattnastiey Proof of

Claim in — Colorado uintnatied

Court - ae . A-40

. Colorado Bankruptcy Court ind Order — No-

vember 5, 1974. _ _ cibisebsadainemetictesnetnuiecbasns«. GRU

. Tenth Circuit Order sasenite wind — January

Sf ee | aa

8. Performance Bond — October 25,1972... ss A -46

9. Oklahoma District Court Judgment — June 15,

1978 A-50

FILED

United States Court of Appeals

Tenth Circuit

JAN 13 1978

HOWARD K. Puri Lips

Clerk

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

Nos. 75-1464, 75-1465, 75-1466, 75-1467, 75-1469, 75-1470,

75-1471, 75-1472, 75-1475, 75-1479 and 75-1480

GLose Construction Co., a corpo-

ration,

Plaintiff-Appellant in

75-1479 and 75-1480,

v.

)

)

)

)

)

)

OKLAHOMA City Housinc AUTHORITY, )

Third Party Plaintiff- )

Appellee in 75-1465, )

JACK MATHERLY, dba JACK MATHERLY )

MECHANICAL Contractor (Appellee }

in 75-1470); O. C. Mappox, dba Map-_ )

pox Paint ConTRACTING CoMPANY; )

)

)

)

)

)

)

)

)

)

)

)

)

MCS Services, INnc., a corporation Appeal from the

(Appellee in 75-1471); Rock Creek United States

Home CEnrTER, INC., a corpuration District Court

(Appellee in 75-1469); Katie ALex- for the

ANDER STATSER, as Administratrix of

of the Estate of A. F. Statser, de-

ceased (Appellee in 75-1466);

Buitpers Specraty, Inc. (Appellee

in 75-1475); OKLAHOMA TiLE Com-

PANY, Inc.; THe Ceco Corp.; Jerry W.

TAYLor, dba Concrete ConsTRUCTION

Company (Appellee in 75-1467);

Western District

of Oklahoma

A-2

(APPENDIX)

GREEN OLMAN; Ray Davis, dba Pi0-

NEER FLooR Company (Appellee in

75-1464, 75-1479 and 75-1480): Brix

Cox, dba Hom: ImproveMENT Com-

PANY (Appellee in 75-1472),

Defendants,

)

)

)

)

)

)

)

GENERAL INSURANCE COMPANY OF )

AMERICA, )

Defendant-Appellant in )

75-1464, 75-1465, 75-1466, )

75-1467, 75-1469, 75-1470, )

75-1471, 75-1472 and )

75-1475, )

Georce SEMINOFF, WAYNE W. Bow- )

MAN and ALBERT W. Bone, partners )

doing business as SEMINoFF- )

Bow MAN-Bope, )

Third-Party Defendants, )

)

)

)

SOUTHWEsT Etecrtric Co., INc.,

Intervenor-Defendant.

Submitted on July 18, 1977

Judson S. Woodruff, Oklahoma City, Oklahoma (McAfee,

Taft, Mark, Bond, Rucks & Woodruff, Oklahoma City, Ok-

lahoma with him on the briefs) for Globe Construction Co.

William B. Rogers, Oklahoma City, Oklahoma for Okla-

homa City Housing Authority.

Carl E. Moslander, Oklahoma City, Oklahoma for Jack

Matherly, dba Jack Matherly Mechanical Contractor.

John B. Hayes, Okiahoma City, Oklahoma (Looney, Nich-

ols, Johnson & Hayes, Oklahoma City, Oklahoma with him

on the briefs) for MCS Services, Inc.; Katie Alexander

Statser, as Administratrix of the Estate of A. F. Statser,

deceased; Jerry W. Taylor dba Concrete Construction Com-

pany; and Bill Cox dba Home Improvement Company.

A-3

[APPENDIX]

Kenneth Dewbre, Oklahoma City, Oklahoma for Rock

Creek Home Center, Inc.

Robert K. Roach, Wichita Falls, Texas (Gibson, Darden and

Hotchkiss, Wichita Falls, Texas with him on the brief) for

Builders Specialty Inc.

John B. Estes, Oklahoma City, Oklahoma (Stipe, Gossett,

Stipe & Harper, Oklahoma City, Oklahoma with him on the

briefs) for Ray Davis dba Pioneer Floor Company.

Byrne A. Bowman, Oklahoma City, Oklahoma (Felix, Bow-

man, McIntyre & McDivitt, Oklahoma City, Oklahoma with

him on the briefs) for General Insurance Company of

America.

Before McWILLIAMS and DOYLE, Circuit Judges, and

MARKEY, Chief Judge.*

McWILLIAMS, Circuit Judge.

This controversy arises out of a construction contract

that went awry. Globe Construction Company, a Colorado

corporation, entered into“® contract with the Oklahoma

City Housing Authority, a public corporate body organized

under the laws of Oklahoma, to perform certain rehabilita-

tion work on the Will Rogers Low Rental Housing Project

in Oklahoma City, Oklahoma. General Insurance Company,

as surety, executed a performance bond on behalf of Globe.

Various subcontractors were employed by Globe.

The prime contract called for job completion within

180 days. The Authority determined to its satisfaction that

there had been a failure by Globe to make timely perform-

*Of the United States Court of Customs and Patent Appeals, Washing-

ton, D.C, sitting by designation.

A-4

[APPENDIX]

ance, and accordingly the Authority terminated its contract

with Globe, and completed the work itself. Invoking di-

versity jurisdiction, Globe then brought suit in the United

States District Court for the Western District of Oklahoma

against the Authority based on what it alleged was a

wrongful termination of the contract between the parties.

Numerous subcontractors were also named by Globe as

parties defendant, Globe alleging that these subcontractors

had failed to perform. The Authority and the named sub-

contractors in turn asserted counterclaims against Globe.

During the course of the Oklahoma federal court pro-

ceedings, Globe filed for Chapter XI arrangement proceed-

ings under the Bankruptcy Act in Colorado. Globe’s surety

on the performance bond, the General Insurance Company,

was then joined as a party in the Oklahoma proceeding.

Trial of this case was to the court, sitting without a jury,

and culminated in a detailed, 17-page memorandum opin-

ion. In general, the trial judge held adversely as to General

Insurance on any claims asserted by it, on behalf of Globe,

against the Authority or any of the named subcontractors.

Concerning the defendants’ counterclaims, the trial court

held for the counterclaimants and against General Insur-

ance. One defendant-counterclaimant, Ray Davis, doing

business as Pioneer Floor Company, was also awarded

judgment against Globe.

Eleven notices of appeal were filed, each secking re-

view of the judgment as entered by the trial court. Nine of

the notices of appeal were filed by General Insurance and

two by Globe, We shall first consider the nine appeals of

General Insurance.

A-5

[APPENDIX)

Nos. 75-1464, 75-1465, 75-1466, 75-1467, 75-1469, 75-1470,

75-1471, 75-1472, and 75-1475

The nine appeals discussed here concern General In-

surance and its dispute with the Authority and some eight

of the subcontractors. As indicated, the trial judge dis-

missed the claims asserted by General Insurance, on behalf

of Globe, against the Authority and the subcontractors, and

at the same time awarded the Authority and the subcon-

tractors substantial damages, and attorney’s fees, against

General Insurance, based on the obligation which General

Insurance assumed when, as surety, it issued Globe a per-

formance bond. Many of the matters raised by General

Insurance on appeal concern what we deem to be questions

of fact which were resolved by the trial judge on the basis

of conflicting evidence. For example, such matters as fraud

in the inducement; waiver of such fraud; latent conditions,

defective plans, timely performance; substantial perform-

ance; waiver of any right to terminate; reasonable attor-

ney’s fees are in reality factual issues, not legal issues. It is

of course axiomatic that resolution by a trial judge of

controverted issues of fact are not to be overturned by an

appellate court uniess they are clearly erroneous. In the

instant case the trial judge’s critical findings of fact are not,

in our view, clearly erroneous. On the contrary, the court’s

findings are supported by the record and accordingly on

appeal must be accepted.

Two matters urged by General Insurance merit brief

comment. As mentioned above, after Globe instituted the

present action against the Authority and the named sub-

contractors, Globe filed for Chapter XI arrangement pro-

ceedings under the Bankruptcy Act in Colorado. The

bankruptcy referee thereafter entered an order staying all

proceedings against Globe and its surety, General Insur-

ance. The federal district court in Oklahoma ignored this

stay order and, after hearing, entered judgment against

A-6

[APPENDIX})

both Globe and General Insurance. Consideration of the

judgments thus entered against Globe will be deferred for

the moment. Speaking now only as to the judgments en-

tered against General Insurance, the surety, General argues

that because of the pending bankruptcy proceedings involv-

ing Globe in Colorado, the federal court in Oklahoma should

not have continued to proceed as to the surety, General

Insurance, nor should it have entered judgment against

General based on the latter’s performance bond. Under

the circumstances, we do not agree.

A primary purpose of the Bankrupty Act is to place

the property of the debtor under the control of the bank-

ruptcy court. To protect its jurisdiction the bankruptcy

court may enjoin suits against the debtor or involving the

debtor’s property in another court. Texaco, Inc. v. Liberty

National Bank & Trust Company of Oklahoma City, 464

F.2d 389 (10th Cir. 1972). However, the instant case, insofar

as it relates to General Insurance, is not a proceeding

against Globe nor does it concern any property belonging

to Globe. The claim by the Authority and the various sub-

contractors against General Insurance was based on the

obligation assumed by General Insurance under the terms

and provisions of the performance bond. The liability of

General, as surety, is joint and several to the liability of

the principal, Globe. The power of a bankruptcy court to

enjoin in personam suits is confined to suits against the

debtor, and there is no jurisdiction to enjoin a suit brought

to enforce the personal liability of a guarantor of bonds

sccured by a mortgage unon property owned by the debtor.

8 Collier on Bankruptcy § 3.22, at 250 (14th ed. 1976). See .

also, Loyd v. Stewart & Nuss, Inc., 327 F.2d 642 (9th Cir.

1964). For cases holding that a court of bankruntcy is with-

cut jurisdiction to enjoin proceedings where creditors of

the bankrupt institute proceedings against the surety of

the bankrupt, see Jaouith v. Rowlev, 188 U.S. 620 (1903)

‘

wee

A-7

(APPENDIX)

and Brown v. Four-in-One Coal Co., 286 F. 512 (6th Cir.

1923), cert. denied, 262 U.S. 749 (1923). See also Metcalf v.

Barker, 187 U.S. 165 (1902) and Linstroth Wagon Co. v.

Ballew, 149 F. 960 (1907).

As indicated, the trial judge permitted the Oklahoma

proceedings to continue against both Globe and General

after being advised of the institution of bankruptcy pro-

ceedings involving Globe in Colorado. J udgments were

initially entered against both Globe and General. Subse-

quently, however, the Authority became convinced that

its judgment against Globe was invalid, because such had

been entered during the pendency of the bankruptcy pro-

ceedings. During the process of Globe’s appeal, Globe and

the Authority executed a release of the judgment. The re-

lease was carefully worded to the end that it released only

the judgment obtained by the Authority against Globe, and

specifically provided that it did not release the judgment

obtained by the Authority against General Insurance. Not-

withstanding, General Insurance now contends that the

release of the judgment against Globe also released the

judgment entered against General Insurance. We do not

agree. The liability of General Insurance was both joint and

several from the liability of Globe. The fact that the Au-

thority released the judgment which it had obtained against

Globe did not release the judgment against General Insur-

ance. Under Oklahoma law the release of one joint obligor

is not a release of any other obligor when the intent to re-

serve as to the latter is clearly expressed. Barsh v. Mullins,

338 P.2d 845 (Okla. 1959) and All American Bus Lines v.

Saxon, 172 P.2d 424 (Okla. 1946). And the same rule has

been applied to releases of judgment. Hambright v. City

of Cleveland, 360 P.2d 493 (Okla. 1960).

The judgments in 75-1464, 75-1465, 75-1466, 75-1467,

79-1469, 75-1470, 75-1471, and 75-1472 and 75-1475 are sev-

erally affirmed.

A-8

(APPENDIX)

Nos. 75-1479 and 75-1480

These two appeals were filed by Globe and concern

judgments entered against it in favor of Ray Davis, doing

business as Pioneer Floor Company, one of the subcon-

tractors. The first of these two appeals, No. 75-1479, relates

to a judgment entered in favor of Davis in the sum of

$6,011.93 on his counterclaim. The second appeal, No. 75-

1480, pertains to a further judgment later entered in favor

of Davis in the amount of $1,000, this sum representing

reasonable atlorney’s fees. Davis also enjoyed a similar

judgment on its counterclaim against General Insurance,

the latter appealing that judgment in No. 75-1464.

The judgment entered against Globe in No. 75-1480

for $1,000 as attorney’s fees was entered after the institu-

tion of bankruptcy proceedings by Globe in Colorado. Davis

in this Court makes no effort to defend that particular

judgment. Accordingly, the judgment in No. 75-1480 is

vacated and set aside.

We conclude that the judgment entered in No. 75-1479

should also be vacated and set aside. Although the record

is not entirely clear, it nonetheless appears to us that prior

to the bankruptcy proceeding, the trial judge had granted

Davis’ motion for summary judgment, both on Globe's

claim against Davis and as to the Davis’ counterclaim

against Globe. However, the judgment itself was not en-

tered until after the bankruptcy proceedings had been

instituted. Accordingly, the judgment in No. 75-1479 is

vacated and set aside. Texaco, Inc. v. Liberty National Bank

& Trust Company of Oklahoma Citv, 464 F.2d 389 (10th -

Cir. 1972).

nets saasns Prnbeteatat Tete +S

{APPENDIX}

FILED

APR 30 1975

Rex B. HAwKs

CLERK U. S. DISTRICT COURT

(s) Irene Higginbotham

Deputy

IN THE UNITED STATES DISTRICT COURT

FOR THE

WESTERN DISTRICT OF OKLAHOMA

GLOBE CONSTRUCTION CO.,

a corporation,

Plaintiff,

v.

OKLAHOMA CITY HOUSING

AUTHORITY et al.,

Defendants,

eee eee eee ee a”

) No. Civ-73-641-C

and

GEORGE SEMINOFF, WAYNE L.

BOWMAN and ALBERT W. BODE,

Partners, doing business as

SEMINOFF-BOWMAN-BODE,

Third Party

Defendants.

ll i i i i a

MEMORANDUM OPINION

PRELIMINARY STATEMENT

This action was commenced by the filing of a Com-

plaint by Globe Construction Company against the Okla-

homa City Housing Authority, and others, on September

21, 1973. It arises out of a contract dated October 25, 1972,

wherein the plaintiff agreed to furnish all labor, material,

equipment, and services for the remodeling of the Housing

Authority’s Will Rogers Courts public housing facility at

A-10

[APPEND!IX)

Oklahoma City, Oklahoma. Since various allegations were

made with regard to extra labor and materials furnished

as a result of incompleie or defective plans and specifica-

tions prepared by outside architects, the architects were

joined as third-party defendants. The remaining parties-

defendant constitute subcontractors of plaintiff under its

prime contract with the Housing Authority. They filed

counterclaims against the prime contractor because of dis-

putes arising between them, including failure to pay in

accordance with the terms of the various subcontracts and

for extra labor and materials furnished at the insistence of

the prime contractor which were outside the provisions

of the various subcontracts. General Insurance Company

‘ of America as surety under the performance and payment

bonds required as a part of the prime contract became a

party to the proceedings before November 13, 1973, on

which date it filed an Answer to the Counterclaim and

Cross-claim of a subcontractor, Jerry W. Taylor. That An-

swer was filed and executed by R. Brown Wallace of

Andrews, Mosburg, Davis, Elam, Legg & Bixler and A. P.

Murrah, Jr., appeared with him on the pleading. On the

same date, the same counsel filed on behalf of the plaintiff

an Answer to the Counterclaim of the Housing Authority,

and of various subcontracting parties, and an Entry of

Appearance on behalf of General Insurance Company of

America. On July 5, 1974, the defendant Housing Authority

filed its Amendment to Counterclaim to join General In-

surance Company of America on its bond.

With the issues completely joined, pretrial conference

was held on July 16, 1974, when the Court was advised by .

counsel for the various defendants, counterclaimants, and

crossclaimants, that discovery responses from the plaintiff

had been wholly inadequate, and the case should not be

permitted to proceed to trial. At the insistence of Robert E.

Andreen, Esq., of Kaminar, Sorbo, Andreen & Thorn, San

te

A-11

[APPEND!X)

Diego, California, chief counsel for the plaintiff, and be-

cause of economic injuries being suffered by subcontractors

from delay, it was ordered that the matter proceed to trial,

commencing July 30, 1974. It was understood and agreed

by the Court and by all counsel then of record that the

proceedings should be divided into areas of subcontractors’

interest (i.e., electrical, painting, etc.) with regard to per-

formance or failure as between the prime contractor and

the pertinent subcontractor, which evidence would be con-

sidered with regard to that area of the dispute existing

between the plaintiff, Globe Construction Company, and

the defendant Housing Authority. Issues with regard to

delays and cost of completion were to be considered at a

second stage.

Trial commenced on July 30, 1974; the plaintiff’s ex-

hibits had been marked for identification only by files

containing voluminous documentation; the subcontractor

defendants had been unable to ascertain, either through

discovery or through pleadings, the exact nature and ex-

tent of the plaintiff's claims against them. Mr. Andreen

appeared as chief counsel for the plaintiff. Mr. Murrah also

appeared for the plaintiff and for its surety, General Insur-

ance Company of America.

During opening statement on behalf of the Housing

Authority, its counsel indicated it would reauest leave of

Court to amend the defendant’s counterclaim to allege that

the plaintiff fraudulently induced it to execute the re-

modeling contract.

The plaintiff elected to proceed first against Adrian

F. Statser, d/b/a A & J Electric Company. The Court re-

ceived evidence pertaining to the plaintiff’s Claim Number

36-103-127 and, on August 1, 1974, announced tentative

findings with regard to that claim, including a finding that

the plaintiff fraudulently induced the electrical subcon-

tractor to execute the pertinent subcontract and the de-

A-12

[APPENDIX)

fendant Housing Authority to execute the prime contract.

The Court further found the contractor failed to conduct

a full and complete inspection of the premises to be re-

modeled and that the contractor failed to comply with

requirements of the contract for procedures in the event

of dispute. The plaintiff was specifically informed that it

would be provided an opportunity to offer any further evi-

dence, and in fact to reopen and offer additional testimony

with regard to Claim Number 36-103-127. The defendant

Housing Authority was allowed to offer direct testimony

bearing upon the fraudulent conduct of the plaintiff, and

the plaintiff was granted the right of reserving cross-

examination of the Authority’s witnesses and the right

to controvert or rebut such evidence and such testimony,

and to file appropriate briefs prior to August 20, 1974, when

the proceedings were scheduled to recommence.

On August 19, 1974, General Insurance Company of

America, surety of the prime contractor, through its new

counsel, Mr. Byrne Bowman, requested a continuance to

October 1, 1974, in order to permit such new counsel suffi-

cient time for familiarization and preparation. That motion

was granted by agreement of the parties, and the proceed-

ings were continued to October 1, 1974. On September 25,

i974, General Insurance Company of America filed an addi-

tional motion for continuance to “about December 1, 1974”,

or until such time as the plaintiff might complete an un-

related construction project in another area. On the same

date General Insurance Company of America filed its

motion to reopen. The motion for continuance was over-

ruled by order of September 26, 1974, which order provided

the motion to reopen would be reconsidered on October 1,

1974, at recommencement of trial. On October 1, 1974, Mr.

Bowman announced his client, General Insurance Company

of America, had taken control of the plaintiff's action and

the deferse of claims and cross-claims of the various de-

A-13

{APPENDIX}

fendants. Chief counsel for the plaintiff, Mr. Andreen, with-

out leave of Court or courtesy of notice simply failed to

appear, and local counsel for both the plaintiff and its

surety requested permission to withdraw. Plaintiff’s prin-

cipal stockholder and essential witness also was not present.

The Court provided several opportunities for proffers of

testimony or other evidence by the plaintiff or its surety,

both of whom failed to produce witnesses or documentary

evidence. Nor did either the plaintiff or its surety proceed

with cross-examination, earlier reserved of witnesses for

the Housing Authority in the area of fraudulent induce-

ment. The Court adopted proposed findings of fact and con-

clusions of law with regard to Claim Number 36-103-127,

and reluctantly allowed the withdrawal of Mr. Murrah as

counsel for the plaintiff on October 2, 1974. On the follow-

ing day, when plaintiff, Globe Construction Company, failed

to appear by counsel, principal stockholder, witness, or

other representative, and in light of the refusal of Mr.

Bowman to appear on the plaintiff's behalf, the plaintiff

was declared to be in default. On October 4, 1974, the

plaintiff's President and principa! stockholder, appearing

pro se, advised the Court that the plaintiff had filed in the

United States District Court for the District of Colorado

for relief under Chapter XI of the Bankruptcy Act. Non-

jury trial was then conducted to and including October 7,

1974, then recessed to November 25, 1974, when notice was

received that a stay of proceedings had been entered by

the United States Court of Apneals. The Court of Appeals

Order was modified December 4, 1974, to permit recom-

mencement of the proceedings against the surety, and on

January 24, 1975, non-jury trial was scheduled to recom-

mence February 3, 1975. Following seven additional days

of trial, the Court announced judgment.

The proceedings, v aile comnlicated, were frustrated

bv failure of the plaintiff and its surety to avail themselvcs

of discovery procedures after admonishment by the Court,

A-14

([APPEND!x}

continuance, by refusal of the plaintiff to meet its burden

of proof or of going forward with evidence and by efforts

on four occasions to invoke the jurisdiction of the Court of

an order to disqualify the Trial Judge. These tactics ap-

peared calculated to impede the conduct of the trial, and

if so, had the desired effect.

In spite of the refusal of counsel to adequately prepare

for orderly presentation, the Court has received and con-

sidered all of the proffered evidence which might be consid-

ered relevant or material to the claims of the plaintiff and

its surety General Insurance Company of America and of

all other parties and makes the following Findings of Fact

and Conclusions of Law and concludes that judgment

should be entered as hereinafter set forth. Following receipt

of all of the evidence, findings of fact and conclusions of

law heretofore preliminarily entered are set forth and in-

corporated herein with suitable modifications.

FINDINGS OF FACT

1. As a result of requisite competitive bidding, the

plaintiff, Globe Construction Company, was awarded the

contract for the remodeling of Phase I, Project Okla 2-1,

Will Rogers Courts, at Oklahoma City, Oklahoma, by the

Oklahoma City Housing Authority, a public bedy corporate

and politic.

2. Plans and specifications for the remodeling project

were prepared by Seminoff-Bowman-Bode, architects, Ok-

lahoma City, Oklahoma. Such plans were intended to be

suggestive, only; they were intended to illustrate the com-

pleted work, and not to display existing conditions. The

plaintiff contractor was required to inspect the 40-year-old

ee eer

A-15

[APPENDIX}

buildings to be remodeled and to familiarize itself with

conditions relating to construction and labor, warranting

that it would assert no claims because of conditions regard-

ing which it should have been on notice as a result of such

inspection. It warranted that it had made such an inspec-

tion, and fully acquainted itself with conditions relating to

construction and labor. The contractor was also required

to check existing dimensions and all details. With specific

regard to electrical work, the contract provided that elec-

trical system layouts indicated on the drawings were gen-

erally diagrammatic and that location of outlets and equip-

ment should be governed by structural conditions and

obstructions.

3. General standards prevailing in this community

with regard to remodeling of an existing structure or

structures impose upon the prime contractor the duty to

examine the structure or structures to ascertain by proper

investigation defects or obstructions it might encounter

during the course of construction, and to include in its bid

en amount sufficient to compensate it for the accomplish-

ment of the work and materials reauired thereby.

4. The plaintiff Globe Construction Company failed to

conduct an inspection and examination of the structures to

be zemodeled to the extent imposed uvon it by the pro-

visions of the contract, including the plans and specifica-

tions, and impesed by the standards in the community.

5. During the progress of construction, the plaintiff

encountered certain conditions which it alleges required

the expenditure of additional sums for labor and materials.

The conditions referred to by plaintiff in its Claim Number

36-103-127, for which it claims extra compensation in the

emount of $21,045.26, involves electrical junction boxes

embedded in concrete floors of the buildings. None of the

parties involved herein, to-wit, the plaintiff, Globe Con-

struc‘ion Company, the defendant, Oklahoma City Housing

A-16

{APPENDIX}

Authority, the defendant, Adrian Statser, d/b/a A & J

Electric Company, and the third party defendants, Sem-

inoff-Bowman-Bode had knowledge of the embedded junc-

tion boxes. At least fifty percent of the junction boxes were

exposed, and would have been visible to the plaintiff upon

adequate inspection of the job site as required by the con-

tract. It could and should have anticipated that additional

labor and materials would have to be expended for elec-

trical work and should have increased its competitive bid

accordingly. The plaintiff was obligated to discover the

existence of the junction boxes during the course of its

inspection, and was further under an obligation and duty

to reveal the presence of them to the electrical subcon-

tractor, A & J Electric Company.

6. The plaintiff intentionally, willfully, materially and

falsely represented to the defendant, Okahoma City Hous-

ing Authority, that it would comply with the terms of the

construction contract for the amount of its Wid. to-wit, the

sum of $889,388.00, and that its President, G. K. Ward,

would personally supervise the construction job “full time”

The Court specifically finds that the plaintiff never intended

to perform the construction contract according to its terms,

but rather intended to rely upon asserted deficiencies in the

plans and specifications in order to profit from change or-

ders to the contract resulting in substantial increase in

price; nor did it ever intend that its President, G. K. Ward,

would provide full-time supervision.

7. The plaintiff, Globe Construction Company, fraudu-

lently induced the defendant, A & J Electric Company, its

subcontractor, to enter into the electrical subcontract by

material and false misrepresentation, known by the plain-

tiff to be false.

8. In direct violation of its executed Non-Collusion

Affidavit, plaintiff conspired, colluded, and agreed both

directly and indirectly to put in sham bids, and sought by

A-17

[APPENDIX]

agreement or collusion to fix the bid price of other bidders,

and thereby secured an advantage against the defendant,

Oklahoma City Housing Authority.

9. The plaintiff failed to comp!y with the requirements

contained in the construction contract concerning the pro-

cedure for change orders, and further failed to comply with

the provisions set forth requiring presentation in writing

to the contracting officer for decision all disputes and all

claims for alleged breach of contract.

10. The plans and specifications for the Will Rogers

Courts, prepared by Seminoff-Bowman-Bode, were pre-

pared in a reasonable and prudent manner and in accord-

ance with the standard of care exercised by other architects

in this community. They were prepared in such a manner

that they could be reasonably interpreted and followed by

any reasonably competent contractor.

11. The contractor failed to complete its work dili-

gently and in a workmanlike, orderly manner.

12. The contractor failed to fully acauaint itself with

conditions relating to construction at the job site.

13. The contractor failed to negotiate the value of

extra or omitted work in advance, and to state such value

in a change order describing the nature and extent of the

change, or to await a proceed order from the Housing Au-

thority stating the manner in which the value of any change

would be determined.

14. The contractor made changes in the work without

a written change order from the defendant Housing Au-

thority, approved on its face by the Department of Housing

and Urban Development, and in the absence of an emer-

gency or written order, made changes that were not neces-

sary for the protection of life and property.

< |

(APPENDIX) oF

15. The plaintiff failed to protest to the contracting

officer with regard to claims for extra costs or extension of

time within ten (10) days after receipt of instructions in-

volving such extra cost or extension of time.

16. The plaintiff contractor failed, within ten (10)

days from the beginning of delays caused by weather, by

ond way neglect of the local authority, or by changes in

e work, to notify the contracting officer of the cause

extent of such delays. : ”

17. The plaintiff failed to present to the contracting

cfficer for decision, in writing, all disputes and all claims

for alleged breach of contract within ten (10) days follow-

ing commencement of such disputes.

18. The plaintiff contractor failed to j rope

provide r

protection for existing work which was open or ame

during the course of construction and failed to protect its

work from damage and the Owner’s property from injury

or loss,

20. The plaintiff contractor failed to provide for tem-

porary electric service and water service needed during the

construction and failed to provide temporary local heating

re maa to prevent injury and damage from dampness

or cold.

21. The contractor failed to complete the work called

for by the contract within 180 consecutive calendar days

from the date of notice to proceed, October 1, 1973, includ-

ing time extensions of 21 days granted by the Housing

Authority.

22. The contractor failed to provide adequate super-

vision for the work in progress, resulting in complete

failure of coordination between subcontracting crafts and

unnecessary and unreasonable delays.

_

A-19

{APPENDIX}

23. The contractor failed to timely supply materials

required to be furnished by him, under the terms of various

subcontracts, which failure resulted in further unreason-

able and unnecessary delays and rendered coordination and

contact between crafts impossible.

24. The claims of the contractor, identified by control

numbers, as indicated below, resulted from failure of the

contractor in one or more of the areas of non-compliance

set forth in the preceding findings. The claims are denoted

by claim number and description of work as follows:

Globe Control Number Brief Description

36-103-103 /108 Plastering behind convex

Misc. plastering /replacing

of nipples

36-103-104/112 Replacement of Exterior

glazing

36-103-109 /111 Hollow door frames

36-103-110 Outside overhead electrical

work

36-103-114 Uniform white birch doors

36-103-115 Time extensions

36-103-117 Boiler bases

36-103-119/136 Piping to panel distribution

boxes

36-103-120 Kitchen drains

36-103-121 Off-street parking permit

36-103-122 Plaster patching

36-103-123 Drapery rod mounting boards

36-103-125 Preparation of paint surfaces

A-20

(APPENDIX)

36-103-126 Field change order—

mechanical

36-103-127 Wiremold

36-103-129 Steel door frames

36-103-134 2-way switches

36-103-140 Junction boxes

Complete details with regard to each of the foregoing items

are contained in exhibits offered by General Insurance Com-

pany of America and received by the Court.

25. Claims for time extensions on account of weather,

delay in approval of submittals, and all other claims for

tractor or of the defendant Housing Authorit

‘ y. Progress

of the work was not delayed by inclement weather, except

to the extent of 16 days allowed by the defendant, Housing

Authority.

26. The procedure which the defendant, Housing Au-

thority, is required to utilize in arriving at rentals to be

paid for its units, together with the presence or absence of

available tenants who are eligible, and the amount of rent-

als to be paid by such tenants, renders the assessment of

exact actual damages extremely difficult. Damages cannot

be measured with an exact degree of accuracy but are not,

on the face of the contract in Suit, out of proportion to

probable loss.

27. The Court concludes that the defendant, Oklahoma

City Housing Authority, should have and recover judgment

as against the General Insurance Company of America, as

surety on the performance bond of the vlaintiff, Globe

Construction Company, in the amount of $177,504.00 being

liquidated damages as provided in the construction contract

cs'culated from extended completion date of May 20, 1973,

~ et deena: i

"copia kat ia ai

A-21

(APPENDIX)

to actual date of completion on January 11, 1974, except

as to Buildings 51 and 52 which were accepted July 25,

1973. The Housing Authority should also have and recover

an amount of $1,858.71 for deletion of a parking lot the

contractor was not required to install, and $75,000.00 for

the use and benefit of its attorney, William B. Rogers, as

a reasonable fee for services performed on behalf 9f his

‘client herein; the sum of $10,070.53 for the use and benefit

of John R. Couch and Hugh M. Baysinger, as counsel for

third-party defendants, Seminoff-Bowman-Bode. From this

amount, General Insurance Company of America is entitled

to credit in the amount of $1,685.88 for net profit due the

contractor on field change orders for which payment has

been rendered to Matherly Mechanical Contractors in the

amount of $28,097.63.

28. Following receipt of notice that its bid had been

accepted, the plaintiff executed contracts for work to be

performed by various subcontractors. Almost immediately

disputes between the prime and the subcontractors com-

menced. Findings and conclusions with regard to those dis-

putes are set forth hereafter.

Builders Specialty, Inc.

29. The subcontract with this defendant called for fur-

nishing of labor and material for installation of gypsum

board, dry and metal studs, installation of steel door jambs,

and acoustical ceilings. By an executed change order, Build-

ers Specialty was directed, in addition, to install 504 new

wood interior doors at $6.00 ner door for a total increase

to the subcontract price of $3,024.00. Subsequently, the

plaintiff directed the subcontractor to furnish additional

labor and material, not called for by the subcontract, as

amended by Change Order No. 1, by mortising the new

wood doors and installation of wall molding, for which the

subcontract price should have been increased an additional

A-22

(APPENDIX)

sum of $1,059.39. In addition, the plaintiff failed to supply

proper sized steel door jambs for installation by Builders

Specialty, resulting in damages in the additional amount

of $2,778.30. About May 31, 1973, the plaintiff breached its

subcontract with this defendant by failing to timely pay

the defendant for 90% of the work, labor and materials

furnished by defendant under its contract, even though the

plaintiff had received payment from the defendant Hous-

ing Authority.

By reason of the aforesaid, the defendant, Builders

Specialty, should recover as against the surety the sum of

$20,181.69, from which should be deducted credits for 70

doors not installed by Builders Specialty having a fair and

reasonable cost of $245.00, for acoustical ceiling not in-

stalled having a fair and reasonable cost to Builders Spe-

cialty of $700.00, and for $64.00 being the reasonable cost

of performance of punch list items by the defendant, Hous-

ing Authority, and for payments made to the subcontractor

in the amount of $13,806.87, leaving a total balance due of

$5,392.82. The defendant, Builders Specialty, Inc., is en-

titled to recover the amount of $5,380.82 with interest from

August 10, 1973, and reasonable aitorneys’ fees in the

amount of $6,190.00 and all costs exvended herein.

Rock Creek Home Center, Inc.

30. This subcontract was not executed until February

16, 1973. It involves prefabrication and installation of par-

tially new and a modification of existing kitchen cabinets.

The contractor required additional performance increasing

the value of performance to $39,973.59. Again, the contractor

failed to timely make progress payments for which it had

been paid. Having been denied payment, Rock Creek Home

Center, Inc., terminated its contract and abandoned the

work on August 15, 1973, at which time it had completed

60% of the work it had agreed to verform. It received only

A-23

(APPENDIX)

$15,437.00 in payment from the prime contractor, leaving

a balance due of $15,959.35, and is entitled to recover that

amount, with interest commencing August 15, 1973, and

costs expended herein including reasonable attorneys’ fees

in the amount of $6,000.00.

Matherly Mechanical Contractors, Inc.

31. This contract for plumbing, heating, and other me-

chanical work, required performance for compensation of

$315,000.00, of which the contractor paid only $275,580.79,

leaving a balance due of $39,419.21. Additional work was

done by Matherly outside the scope of the prime contract

and of its subcontract in the amount of $28,097.63, repre-

senting field change orders. It received payment from the

owner, Housing Authority, during the course of litigation

by stipulation of the parties concerned. It also performed

additional work at the direction of the prime contractor,

having a value of $2,108.62, for which it has not been paid,

for a total balance due this subcontractor of $41,527.83, less

agreed credits due the prime contractor of $366.40. It should

have judgment. for $41,161.43, with interest thereon from

September 17, 1973, the date it completed its work, and

for costs expended herein, including reasonable attorneys’

fees in the amount of $15,000.00.

Adrian F. Statser, d/b/a A& J Electric Company

32. This defendant-electrical subcontractor performed

its contract in full and was required by the plaintiff to

perform additional work in the amount of $48,263.52. The

balance of the original contract price due the subcontrac-

tor is $66,846.20, with a balance due of $115,109.72, which

amount it is entitled to recover, with interest from Sep-

tember 20, 1973, the date the prime contract was termi-

nated by defendant, Housing Authority, and reasonable

attorneys’ fees in the amount of $25.000.00.

A-24

(APPENDIX)

M.C.S. Services, Inc.

33. This painting subcontractor is due the unpaid bal-

ance on its original subcontract price in the amount of

$13,622.00. It did additional glazing at the direction of the

plaintiff, having a value of $3,260.00, and was required to

do painting not called for by the terms of the subcontract

resulting from damage by the plaintiff to surfaces already

painted in the amount of $18,500.00. It is entitled to judg-

ment in the amount of $35,382.00, with interest from Sep-

tember 20, 1973, and all costs expended herein, including

reasonable attorneys’ fees in the amount of $8,000.00.

Jerry W. Taylor,

a‘b/a Concrete Construction Company

34. This concrete subcontractor is due an unpaid bal-

ance on its subcontract price of $3,500.00, less credit for

installation of sidewalks not properly installed by the sub-

contractor of $1,851.78, leaving a balance due of $1,648.22,

for which the subcontractor is entitled to judgment with

interest from September 20, 1973, and costs expended

herein, including reasonable attorneys’ fees in the amount

of $500.00.

Bill Cox, d/b/a Home Improvement Company

35. The balance due this subcontractor on his original

contract price is $4,700.00, for which it is entitled to judg-

ment with interest from Sentember 20, 1973, and a reason-

able attorneys’ fee in the amount of $1,250.09.

Kenneth E. Ballard, d/b/a Ballard Fence Company

36. Ballard has a balance due under its subcontract

of $1,410.00 and is entitled to recover that amount with

interest from September 20, 1973, and a reasonable ai-

torneys’ fee in the amount of $500.00.

COG ak: cet nanan mE OP a

ms mtd

A-25

(APPENDIX)

Southwest Electric Co., Inc.

37. Southwest Electric Co., Inc., furnished transform-

ers to the prime contractor having a value of $2,945.80,

which were items of equipment required to be furnished

by the defendant, Adrian F. Statser, d/b/a A& J Electric

Company. Upon payment of the transformer cost to South-

west Electric Co., Inc., credit should be issued the surety

as against the judgment of Adrian F. Statser.

38. The plaintiff and its surety failed to prove by a

preponderance of the evidence any claim or back charges

against the subcontracting parties for breach of contract,

for delay in performance or for failure to furnish and in-

Stall labor and materials in compliance therewith, except

as herein specifically allowed. The evidence shows clearly

that each of said subcontractors performed its contract

work according to the terms and conditions of its respective

subcontract, and they are entited to recover accordingly.

CONCLUSIONS OF LAW

1. The General Insurance Company of America, as

surety on the performance bond of the plaintiff, Globe Con-

struction Company, having asserted the claims and de-

fenses of the plaintiff, should have and recover nothing

as against the defendant, Oklahoma City Housing Authority

or the subcontractor-defendants and intervenors, on its

Complaint, as amended, including permissive amendment

in conformity with the proof.

2. General Insurance Company of America, as surety

upon the bonds of the principal, Globe Construction Com-

pany, the plaintiff herein, is jointly and severally liable

with the plaintiff for claims for labor and materials fur-

nished in prosecution of the work required and for per-

formance of the contract according to its terms. The bank-

ruptcy proceedings filed by the plaintiff, while overating as

A-26

{APPENDIX}

a stay of any proceedings against the plaintiff, do not affect

the right of the parties to proceed as against General In-

surance Company of America, as surety for the plaintiff,

for labor and materials furnished by subcontractors, and

for performance of the prime contract.

3. The defendant and intervening subcontractor-parties

hereto should have and recover judgment against the Gen-

eral Insurance Company of America, as surety on the statu-

tory and payment bond of the plaintiff, Globe Censtruction

Company, as follows:

a. Rock Creek Home Center, Inc., the sum of $15,-

959.35, with interest from August 15, 1973, and costs,

including reasonable attorneys’ fees in the amount of

$6,000.00;

b. Matherly Mechanical Contractors, the sum of

$41,161.43, with interest from September 17, 1973, and

costs, including attorneys’ fees in the amount of $15.-

000.00;

c. Builders Specialty, Inc., the sum of $5,380.82,

with interest from August 10, 1973, and costs, including

reasonable attorneys’ fees in the amount of $6,190.00;

d. Adrian F. Statser, d/b/a A& J Electric Com-

pany, the sum of $115,109.72, with interest from Sep-

tember 20, 1973, and costs, including reasonable attorneys’

fees in the amount of $25,000.00;

e. M.C.S. Services, Inc., the sum of $35,382.00, with

interest from September 20, 1973, and cos‘s, including

reasonable attorneys’ fees in the amount of $8,000.00; :

f. Jerry W. Taylor, d/b/a Concrete Construction

Company, the sum of $1,648.22, with interest from Sep-

tember 20, 1973, and costs, including attorneys’ fees in

the amount of $500.00:

ol ee

ee. ae} Ot ee

ON ee oe ots 2 hie

A-27

[APPENDIX)

g- Bill Cox, d/b/a Home Improvement Company,

the sum of $4,700.00 with interest from September 20,

1973, and costs, including attorneys’ fees of $1,250.00;

h. Kenneth E. Ballard, d/b/a Ballard Fence Com-

pany, the sum of $1,410.00, with interest from September

20, 1973, and costs, including reasonable attorneys’ fees

of $500.00;

i. Southwest Electric Co., Inc., the sum of $2,945.80

to be credited against the judgment herein rendered in

favor of Adrian F. Statser, d/b/a A& J Electric Com-

pany.

DATED this 30th day of April, 1975.

s/ Stephen S. Chandler

UNITED STATES DISTRICT JUDGE

A-28

(APPENDIX)

FILED

APR 30 1975

Rex B. HAwks

CLERK U. S. DISTRICT COURT

(s) Irene Higginbotham

Deputy

IN THE UNITED STATES DISTRICT COURT

FOR THE

WESTERN DISTRICT OF OKLAHOMA

GLOBE CONSTRUCTION COMPANY ,)

Plaintiff,

Vv. No. Civ-73-641-C

OKLAHOMA CITY HOUSING

AUTHORITY, et al,

i a

Defendants. )

FINAL JUDGMENTS ON ALL ISSUES

AS TO ALL PARTIES

Having considered all pleadings, stipulations, oral tes-

timony and documentary evidence, in a series of trial

sessions, and having announced from the bench the Court's

final determination of all issues as to all parties, the Court

adjudges and decrees judgments in favor of the following

parties against General Insurance Company of America,

which judgments are ordered entered in accordance with

Federal Rule of Civil Procedure No. 54 (b):

Principal Attorney

Party Amount Fee Total

Oklahoma City Housing

Authority $187,747.36 $75,000.00 $262,747.36

Adrian Statser, d/b/a

A &J Electric Company $115,109.72 $25,000.00 $140,109.72

Kenneth E. Ballard,

d‘b/a Ballard Fence $1,410.00 $500.00 $1,910.00

ae ee eee

en

ee ee

PI GOL. crs eke

A-29

[APPENDIX}

Jerry Taylor, d/b/a

Concrete Construction

Company $1,648.22 $500.00 $2,148.22

Bill Cox, d/b/a

Home Improvement Co. _ $4,700.00 $1,250.00 $5,950.00

MCS Services, Inc.

. (Maddox Paint Contract-

ing Company ) $35,382.00 $8,000.00 $43,382.00

Matherly Mechanical

Contractors, Inc. $41,161.43 $15,000.00 $56,161.43

Rock Creek Home

Center, Inc. $15,959.35 $6,000.00 $21,959.35

Southwest Electric Company, the sum of $2,945.80 to be

credited against the judgment herein rendered in favor of

Adrian F. Statser, d/b/a A & J Electric Company when

paid by General Insurance Company of America.

IT IS SO ORDERED AND ADJUDGED.

The Court previously signed (and the Clerk entered

on the docket sheet) the following judgments against GEN-

ERAL INSURANCE COMPANY OF AMERICA:

Principal Attorney

Date Party Amount Fee Total

1/6/75 Ray Davis,

d/b/a Pioneer

Floor Company $6,011.93 $1,000.00 $7,011.93

2/25/75 Builders Spec-

ialty, Inc. $5,380.82 $6,190.00 $11,570.82

Having determined all issues as to all parties, the Court

orders that said judgments now be entered in accordance

with Rule 54(b).

A-30

(APPENDIX)

The Court previously signed (and the Clerk entered on

the docket sheet) the following judgments against GLOBE

CONSTRUCTION COMPANY:

Date Party Amount

8/19/74 Ray Davis, d/b/a Pioneer Floor

Company $6,011.93

8/22/74 Oklahoma Tile Company $2,194.00

10/1/74 A.J. Statser,d/b/aA& J

Electric Company $19,657.44

10/7/74 Oklahoma City Housing Authority

Liquidated Damages $177,504

Exemplary Damages $250,000 $427,504.00

10/7/74 Ray Davis, d/b/a Pioneer Floor

Company $1,000.00

Having determined all issues as to all parties, the Court

orders that said judgments now be entered in accordance

with Rule 54(b).

This constitutes a final determination and adjudication

of all issues as to all parties; and, accordingly, the Clerk is

directed to forthwith enter said judgments in accordance

with Rule 54(b).

Dated this 30th day of April, 1975.

s/ Stephen S. Chandler

UNITED STATES DISTRICT JUDGE

ENTERED IN JUDGMENT DOCKET ON

APR 30 1975

By: CATHY JUNE JUSTICE

A tet ole ry RE Sr ea wm noes ite,

Pete alm WN, i a tat aCe alk oho

Seiad Piaigsnay Sab e

A-31

(APPENDIX)

FILED

APR 30 1975

REx B. HAWKs

CLERK, U.S. DISTRICT COURT

(s) Irene Higginbotham

Deputy

IN THE UNITED STATES DISTRICT COURT

FOR THE

WESTERN DISTRICT OF OKLAHOMA

GLOBE CONSTRUCTION COMPANY, )

Plaintiff, )

Vv. ) No. Civ-73-641-C

)

OKLAHOMA CITY HOUSING )

AUTHORITY, et al, )

Defendants. )

SUPPLEMENT TO FINAL JUDGMENTS

ON ALL ISSUES AS TO ALL PARTIES

Through inadvertence there was omitted from the list

of those entitled to judgment against General Insurance

Company of America on the first page of the Judgment filed

en April 30, 1975, the following:

Principal Attorney

Party Amount Fee Total

Oklahoma Tile Company $2,194.00 $750.00 $2,944.00

for which sum the Court had theretofore entered judgment

and said Final Judgments On All Issues As To All Parties

is so amended to include said judgment in favor of Okla-

homa Tile Company.

s/ Stephen S. Chandler

UNITED STATES DISTRICT JUDGE

ENTERED IN JUDGMENT DOCKET ON

APR 30 1975

By: CATHY JUNE JUSTICE

ae ee ee

A-32

[APPENDIX]

FILED

APR 30 1975

REX B. HAWKS

CLERK, U.S, DISTRICT COURT

(s) Irene Higginbotham

Deputy

IN THE UNITED STATES DISTRICT COURT

FOR THE

WESTERN DISTRICT OF OKLAHOMA

GLOBE CONSTRUCTION COMPANY, )

Plaintiff, )

Vv. ) No. Civ-73-641-C

OKLAHOMA CITY HOUSING

AUTHORITY, et al,

Defendants. )

SUPPLEMENT TO FINAL JUDGMENTS

ON ALL ISSUES AS TO ALL PARTIES

Through inadvertence there was omitted from the list

of those entitled to judgment against General Insurance

Company of America on the first page of the Judgment filed

on April 30, 1975, the following:

Principal Attorney

Party Amount Fee Total

Oklahoma Tile Company $2,194.00 $750.00 $2,944.00

for which sum the Court had theretofore entered judgment

and said Final Judgments On All Issues As To All Parties

is so amended to include said judgment in favor of Okla-

homa Tile Company.

s/ Stephen S. Chandler

UNITED STATES DISTRICT JUDGE

ENTERED IN JUDGMENT DOCKET ON

APR 30 1975

By: CATHY JUNE JUSTICE

A-33

[APPENDIX}

FILED

IN OPEN COURT

OCT 7 1974

Rex B. HAWKS

CLERK, U.S. DISTRICT COURT

(s) Irene Higginbotham

Deputy

IN THE UNITED STATES DISTRICT COURT

FOR THE

WESTERN DISTRICT OF OKLAHOMA

GLOBE CONSTRUCTION CoO.,

a corporation,

~~"

Plaintiff,

v.

OKLAHOMA CITY HOUSING

AUTHORITY et al.,

Defendants, ) No. Civ-73-641-C

and

GEORGE SEMINOFF, WAYNE L.

BOWMAN and ALBERT W. BODE,

Partners, doing business as

SEMINOFF-BOWMAN-BODE,

Third Party

Defendants.

JUDGMENT

This Cause came on regularly to be heard the 1st day

of October, 1974, before the undersigned District Judge

having been continued to said date by Order of this Court,

the Plaintiff Globe Construction Company appearing by its

attorney, A. P. Murrah, Jr., the Defendant Oklahoma City

Housing Authority appearing in person and by its attorney,

William B. Rogers, the Defendants, MCS Services, Inc. and

A. J. Statser d/b/a A & J Electric Company, appearing in

person and by their attorney, Clyde J. Watts, the Genera]

Ne eee eee

A-34

(APPENDIX)

Insurance Company of America appearing in person and

by its attorneys of record, A. P. Murrah, Jr. and Byrne A.

Bowman, the Third-party Defendants, Seminoff-Bowman-

Bode appearing in person and by their attorneys Hugh A.

Baysinger and John R. Couch.

Whereupon A. P. Murrah, Jr. moves the Court to with-

draw as attorney of record for Globe Construction Company :

and for General Insurance Company of America, and the

Court takes such motion under advisement, requesting said

counsel to continue in order to permit Globe Construction

Company to obtain other counsel, Robert A. Andreen, coun-

sel of record for Globe Construction Company, appears not,

Whereupon, the proceedings continue to October 2,

1974, with all remaining parties represented as hereinabove

set forth, the Plaintiff Globe Construction Company being

present in person by its President, G. K. Ward, at which

time A. P. Murrah, Jr. was granted permission to with-

draw as counsel of record for Globe Construction Company

and General Insurance Company of America, and the Court

proceeded to hear the evidence and these proceedings con-

tinued to October 3, 1974.

The Plaintiff, Globe Construction Company appears

neither in person nor by counsel, and upon motion by the

Defendant, Oklahoma City Housing Authority, said Plain-

tiff is declared to be in default.

Now on this 4th day of October, 1974, the Motion of

the Defendant, Oklahoma City Housing Authority, for

Judgment by reason of the default of the Plaintiff, Globe

Construction Company, as against said Plaintiff, is sus-

tained. ;

It is therefore ordered judged and decreed by the

Court that the Plaintiff, Globe Construction Company, re-

cover nothing by virtue of its action against the Defendant,

Oklahoma City Housing Authority, and that said Defend-

A-35

(APPENDIX)

ant, Oklahoma City Housing Authority, have and recover

Judgment as against the Plaintiff, Globe Construction Com-

pany upon its counter-claim, as amended, in the amount of

$177,504.00 for liquidated damages, and for $250,000.00 as

punitive or exemplary damages, for reasonable attorney’s

fees, to be fixed by the Court, for interest as provided by

law, for costs, and for all costs expended herein.

Dated this 7th day of October, 1974.

s/ Stephen S. Chandler

UNITED STATES DISTRICT JUDGE

FILED

AUG 11 1975

REFEREES IN BANKRUPTCY

DistRICT OF COLORADO

UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF COLORADO

In re )

) IN PROCEEDINGS FOR

GLOBE CONSTRUCTION CO., ) AN ARRANGEMENT

) No. 74 B 3023

Debtor. )

MEMORANDUM OPINION, FINDINGS OF FACT,

CONCLUSIONS OF LAW AND ORDER DENYING

CLAIM OF OKLAHOMA CITY HOUSING

AUTHORITY

THIS MATTER is before the Court upon the objection

of the Debtor to the claim filed herein by the Oklahoma

City Housing Authority in the amount of $427,504.00, plus

attorneys’ fees, costs, interest, etc., incurred in a certain

Civil Action in the United States District Court for the

Western District of Oklahoma. It appears from the record

A-36

(APPENDIX)

that this proceeding was filed on October 3, 1974, at which

time there was pending a lawsuit before the Honorable

Stephen S. Chandler, United States District Judge for the

Western District of Oklahoma. Upon the filing of this pro-

ceeding, the counsel for the Debtor in the Oklahoma matter

was permitted to withdraw; and upon the failure within a

very short period of time of the Debtor to secure new coun-

sel, a default judgment was entered therein in the amount

of $177,504.00 liquidated damages and $250,000.00 punitive

or exemplary damages and for attorneys’ fees, interest and

costs. At the hearing in this matter upon the objection to

the claim and at several continuances thereof, the Okla-

homa City Housing Authority failed to appear, apparently

relying upon the judgment entered by Judge Chandler in

the Oklahoma proceeding.

The evidence taken by the Court indicates that suffi-

cient setoffs exist between the Debtor and the Oklahoma

City Housing Authority so as to conclude that upon the

merits of the claim now embodied in the judgment in Okla-

homa, no liability from the Debtor to the Oklahoma City

Housing Authority exists. The question, therefore, before

the Court is whether upon these facts the Court should

give credence to the judgment entered in Oklahoma after

the date of filing of the petition herein, or whether the

Court should proceed to determine the matter upon the

merits and enter judgment on the claim accordingly.

At 3A Collier § 63.11 at Page 1835, it is stated:

A judgment rendered after the institution of bank-

ruptcy proceedings stands on a different footing. A

judgment in rem, rendered in.a suit pending at the

time the petitior was filed, will bind the trustee to

the same extent as any other person who succeeds to

an interest in property pending litigation. But a judg-

ment in personam is binding on the trustee when later

|

i

A-37

[APPEND!IX)

presented as a claim only if the trustee or receiver was

made a party and directed by the bankruptcy court to

defend the suit. And even if the trustee is made a

party, but at too advanced a stage to afford an oppor-

tunity to inquire into the merits—as, for instance, after

a judgment had been rendered by default and the term

of the court meanwhile expired— he bankruptcy court

may refuse to be bound by the judgment and require

the creditor to file his proof on the facts underlying

the judgment rather than on the judgment itself.

Section 63 of the Bankruptcy Act provides that debts

of the bankrupt may be proved and allowed which are

founded upon

(1) a fixed liability, as evidenced by a judgment or

an instrument in writing, absolutely Owing at the time

of the filing of the petition by or against him, whether

then payable or not, with any interest thereon which

would have been recoverable at that date... (5) prov-

able debts reduced to judgments after the filing of the

petition and before the consideration of the bankrupt’s

application for a discharge, less costs incurred and in-

terest accrued after the filing of the petition and up to

the time ef the entry of such judgments. ...

Section 314 of the Act provides that the Court may

Stay until final decree the commencement or continuation

of suits, and Rule 11-44 of the Bankruptcy Rules supple-

ments and reenforces the policy of Section 314 by making

such stay automatic until relief therefrom is sought. It is

generally settled that the posi ion of a debtor in possession

under Chapter XI of the Act clothes the debtor with the

Same powers and rights of a trustee in a liquidating bank-

ruptcy under Chapters I through VII of the Act, and Sec-

tion 63 is generally incornorated by reference into proceed-

ings under Chapter XI.

A-38

(APPENDIX)

A leading case very much on point with the instant

case is Greenberg v. Paramount Pictures, Inc., arising out

of the reorganization proceeding under former Section 77B

of the Bankruptcy Act of Paramount Publix Corporation

[85 F.2d 42 (2nd Cir. 1936) ], where in an opinion by Judge

L. Hand, the Court states:

In spite of the reservation in Riehle v. Margolies,

279 U.S. 218, 219, in the note to page 228, 49 S.Ct. 310,

314, 73 L.Ed. 669, we take it as law that a judgment

obtained after bankruptcy petition filed does not liqui-

date a claim for purposes of distribution. In re Brady

Foundry Co., 3 F. (2d) 437 (C.C.A. 7); In re Barrett &

Co. (D.C.) 27 F.(2d) 159, affirmed 29 F.(2d) 737 (C.C.

A. 5); In re Hoey, Tilden & Co. (D.C.) 292 F. 269; In re

Service Appliance Co. (D.C.) 39 F.(2d) 632; In re Ken-

wood Storage & Warehouse Corporation (D.C.) 4 F.

Supp. 561. The fact that section 63b, Bankr. Act (11

U.S.C.A. § 103 (b), allows unliquidated claims to be

liquidated “in such manner as it” (the court) “may

direct,” would seem to give it control over liquidation.

See, also, section 11 and section 57d (11 U.S.C.A. §§ 29,

93 (d). Therefore, except for the reorganization pro-

ceeding, the judgment creditor would have had to

prove his claim before the referee, or in some other

way chosen by the court under section 63b. The ques-

tion is whether a claim in reorganization, based upon a

judgment obtained pending the bankruptcy, is in a

different class. If all the creditors are to be paid in full,

there would be more ground for saying so; the debtor

had its opportunity to contest the action and chose to

allow a default, and it alone has any interest in the

reorganization. But where, as here, creditors must

abate their claims, the result is to introduce among

them an unwarranted, or overblown, claim which they

have never had any chance to contest. The bankruptcy

trustee has no apparent interest in doing so, for the

;

;

:

'

A-39

{APPENDIX}

outcome of the action concerns only the bankrupt; he

should not be asked to divine the possibility of a future

reorganization, and if he did, it would be an unreason-

able imposition to require him to take measures against

so remote a hazard.

To a like effect is Marks v. Brucker, 434 F.2d 397 (9th

Cir. 1970).

It, therefore, appears that the Debtor in Possession

having failed to proceed in the litigation in Oklahoma and

a default judgment therein entering within a few days after

the filing of the petition herein and the Oklahoma City

Housing Authority having proceeded to take a default judg-

ment therein in violation to the stay imposed by Rule 11-44

pursuant to the provisions of Section 314 of the Act, the

judgment entered post-petition cannot be construed as

binding upon the estate herein. To permit otherwise would

be to permit a claim of large amount entered in a non-

contested proceeding to operate to the detriment of the

creditors as a whole.

The Court then must turn to the evidence taken, and

it appearing that no liability from this Debtor to the Okla-

homa Housing Authority exists in view of the setoffs avail-

able to the Debtor, Claim No. 25 filed by the Oklahoma

City Housing Authority should be disallowed.

WHEREFORE, IT IS ORDERED that Claim No. 25

filed by the Oklahoma City Housing Authority be and the

same is hereby disallowed.

DONE at Denver in said District this 11th day of

August, 1975.

BY THE COURT:

Glen E. Keller, Jr.

Bankruptcy Judge

A-40

(APPENDIX)

United States District Court

For the... District of COLORADO

In re: )

GLosBE CONSTRUCTION Co., ) Bankruptcy No. 74-B—3023

Bankrupt* )

PROOF OF CLAIM

1. [If claimant is an individual claiming for himself]

The undersigned, who is the claimant herein, resides at **.

[If claimant is a partnership claiming through a mem-

ber] The undersigned, who resides at **

is a member of

composed of the undersigned and

of ** , and

doing business at **

and is authorized to make this proof of claim on behalf of

the partnership.

[If claimant is a corporation claiming through an au-

thorized officer] The undersigned, who resides at ** 1716

Drakestone Avenue, Oklahoma City, Oklahoma 73120, is

the Executive Director of The Oklahoma City Housing Au-

thority, a corporation organized under the laws of the State

of Oklahoma, and doing business at ** 501 Couch Drive,

Oklahoma City, Oklahoma 73102, and is authorized to make

this proof of claim on behalf of the corporation.

[If claim is made by agent] The undersigned, who re-

, a partnership,

sides at ** , is the agent of

, of °* , and is

authorized to make this proof of claim on behalf of the

claimant. :

2. The bankrupt was, at the time of the fili , of the

petition initiating this case, and still is indebted [o* liable]

to this claimant, in the sum of $427,504.00, plus attorney’s

whe oe eee ee dn

ee ee ee Pe eee

A-41

(APPENDIX)

fees, costs, interest, and costs expended in CIV-73-641-C,

USDC, Western Dist. of Oklahoma.

3. The consideration for this debt [or ground of lia-

bility] is as follows:

Judgment of the abovenamed Court, in CIV-73-

641-C, dated October 7th, 1974, signed by the Hon-

orable Stephen S. Chandler.

4. [If the claim is founded on writing] The writing

on which this claim is founded (or a duplicate thereof) is

attached hereto.

5. [If appropriate] This claim is founded on an open

account, which became [or will become] due on ,

as shown by the itemized statement attached hereto. Un-

less it is attached hereto or its absence is explained in an

attached statement, no note or other negotiable instrument

has been received for the account or any part of it.

6. No judgment has been rendered on the claim ex-

cept: litigation in this case is not yet complete.

7. The amount of all payments on this claim has been

credited and deducted for the purpose of making this proof

of claim.

8. This claim is not subject to any setoff or counter-

claim except

9. No security interest is held for this claim except

[If security interest in property of the debtor is claimed |

The undersigned claims the security interest under the

writing referred to in paragraph 4 hereof [or under a sep-

arate writing which (or a duplicate of which) is attached

hereto, or under a separate writing which cannot be at-

tached hereto for the reason set forth in the statement at-

tached hereto]. Evidence of perfection of such security in-

terest is also attached hereto.

10. This claim is a general unsecured claim, except to

the extent that the security interest, if any, described in

A-42

(APPENDIX)

paragraph 9 is sufficient to satisfy the claim. [If priority

is claimed, state the amount and basis thereof. }

OKLAHOMA City Housinc AUTHORITY

Dated: Signed: (s) George D. Ormiston

By: George Ormiston,

Executive Director

Penalty for Presenting Fraudulent Claim. Fine of not more than $5000 or

imprisonment for not more than 5 years or both—Title 18, US.C., §152.

FILED

NOV 5 1974

REFEREES IN BANKRUPTCY

DisTRICT OF COLORADO

UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF COLORADO

In the Matter of )

) IN PROCEEDINGS FOR

GLOEE CONSTRUCTION CoO., ) AN ARRANGEMENT

) No. 74 B 3023

Debtor. )

ORDER

THIS MATTER coming on to be heard on the Petition

of General Insurance Company of America/Safeco Insur-

ance Company of America (General), the primary creditor

of the Debtor in possession, and the Court having received

testimony of the Debtor and considered the statements of

counsel and the data offered by the Debtor, the Court

FINDS:

1. All or substantially all of the assets of the Debtor

in possession are involved (1) in an effort to complete a

contract for rehabilitation work at Fort Sill, Oklahoma with

the Corp of Engineers, or (ii) in the Debtor’s defense of

counterclaims and intervenors’ claims now being prosecuted

Loi Le leben nla, lal 2 lsinls alah Sal

:

-

4

:

=

'

:

A-43

(APPENDIX)

in the United States District Court at Oklahoma City. The

orderly administration of the Debtor’s estate, the reason-

able recoveries from the Debtor’s assets and indeed avoid-

*ance of the total collapse of the Debtor, requires that time

be allowed the Debtor and its chief executive officer, G. K.

Ward, to complete its said contract at Fort Sill, Oklahoma,

and also to prepare its defense of complicated issues in

litigation before Judge Chandler, Judge of the United

States District Court of Oklahoma City.

2. The stay of claims against the Debtor will not

achieve the necessary result if those claims are prosecuted

against the Surety, “General”, which in turn is indemnified

for all liabilities, judgments and expense arising out of its

bonds written for the Debtor.

3. The completion of work at Fort Sill is of paramount

and immediate importance. It is to the best interest of the

Debtor and its creditors, including General, as well as such

creditors in Oklahoma as the intervening subcontractors

and the Housing Authority, itself, that the Debtor’s time

in the next ninety (90) days be devoted to the completion

of its work at Fort Sill, rather than the preparation of the

defense of Debtor and Surety in the pending litigation at

Oklahoma City.

4. To enable this Court to discharge its obligations

under the Bankruptcy Act, including the protection and

recovery of the Debtor’s assets, tangible and intangible,

and the marshalling of the claims of the Debtor’s creditors,

it is necessary that a stay be granted against the prosecu-

tion of the claims in Civil Action No. 73-641-C pending

before the United States District Court for Oklahoma at

Oklahoma City as against both the Debtor and its Surety.

NOW, THEREFORE, IT IS ORDERED that all claim-

ants against the Debtor now prosecuting or hereafter to

prosecute claims in the United States District Court for

A-44

{APPENDIX}

Oklahoma City in Civil Action No. 73-641-C, or otherwise,

are specifically enjoined and stayed from the prosecution

of their claims, directly or indirectly, against either the

Debtor or its Surety, General Insurance Company of Amer-

ica or Safeco Insurance Company of America. This Order

shall remain in full force and effect for a period of ninety

(90) days following November 25, 1974, unless hereafter

modified upon motion of any claimant and hearing thereon.

This Order shall be served upon all such claimants by cer-

tified mail and by filing a copy hereof with the Clerk of

the United States District Court for the District of Okla-

homa.

DATED: November 5, 1974

BY THE COURT

s/ Glen E. Keller, Jr.

Bankruptcy Judge

JANUARY TERM — JANUARY 31, 1975

Before Honorable Oliver Seth, Honorable William J. Hollo-

way, Jr., and Honorable William E. Doyle, Cricuit Judges

GLOBE CONSTRUCTION CO., Debtor,

Petitioner,

v. No. 74-1716

THE HONORABLE STEPHEN S.

CHANDLER, United States District

Judge for the Western District

)

)

)

)

)

)

)

of Okahoma, )

Respondent. )

This cause comes on for disposition of the petition for

writ of prohibition and mandamus, the resvonses and briefs

and related motions filed, and the petition for rehearing of

A-45

(APPENDIX)

petitioner, Globe Construction Company, directed particu-

larly to our Order of December 4, 1974, modifying our

original temporary Stay Order of November 25, 1974.

Upon consideration of all pending matters, it is the

opinion of the Court that this proceeding is not one suitable

for the exercise of our extraordinary jurisdiction under 28

U.S.C.A. § 1651. The jurisdictional questions and various

contentions made can be raised on appeal, after thorough

presentation in regular proceedings in the district courts

and before the Bankruptcy Judge.

Accordingly, it is ORDERED that our temporary Stay

Order entered on November 25, 1974, modified on Decem-

ber 4, 1974, be and is vacated, and that the petition and all

relief sought herein is denied and this cause is dismissed,

without prejudice to the presentation of the claims and

contentions asserted herein in further proceedings.

s/ Howard K. Phillips

HOWARD K. PHILLIPS

Clerk

A true copy

Teste

Howard K. Phillips

Clerk, U. S. Court of

Appeals, Tenth Circuit

( signature —

Deputy Cl

A-46

(APPENDIX)

EXHIBIT “A”

Bond No. 2032411

FORM OF PERFORMANCE BOND

PERFORMANCE BOND

KNOW ALL MEN BY THESE PRESENTS: That we,

GLOBE CONSTRUCTION CO., P.O. Box 21227, Hoffman

Heights Branch, Aurora, Colorado 80010, as principals, and

GENERAL INSURANCE COMPANY OF AMERICA, a

corporation organized under the laws of the State Wash-

ington, and authorized to transact business in the State

of Oklahoma, as Surety, are held and firmly bound unto

the Oklahoma City Housing Authority in the penal sum of

EIGHT HUNDRED EIGHTY-NINE THOUSAND THREE

HUNDRED EIGHTY-EIGHT & NO/100 Dollars ($889,-

388.00) lawful money of the United States of America, for

the payment of which, well and truly to be made, we bind

ourselves and each of us our heirs, executors, adminis-

trators, trustees, successors, and assigns, jointly and sev-

erally, firmly by these presents.

Dated this 25th day of October, 1972.

The condition of this obligation is such that:

WHEREAS, said principal entered into a written con-

tract with the Oklahoma City Housing Authority dated

October 25, 1972, for Remodeling of 132 Dwelling Units

Plus a Community Service Social Unit and a Child Day

Care Center of Project OKLA 2-1, Will Rogers Cour‘s, Ok-

lahoma City, Oklahoma, all in compliance with the plans

and specifications therefore, made a part of said contract,

and on file in the office of the Oklahoma City Housing Au-

thority, Oklahoma City, Oklahoma.

NOW THEREFORE, if said Principal shall, in all par-

ticulars, well, truly and faithfully perform and abide by

said contract, and each and every covenant, condition and

:

+

WEIN Ad) AR cadet be te lle» o

wad CAs

A-47

(APPENDIX)

part thereof, and shall fulfill all obligations resting upon

said Principal by the terms of said contract, and said speci-

fications; and if said Principal shall promptly pay, or cause

to be paid, all labor, materials and/or repairs and all bills

for labor performed on said work, whether by sub-contract

or otherwise; and if said Principal shall protect and save

harmless said Oklahoma City Housing Authority from all

loss, damage and expense to life or property suffered or

sustained by any person, firm or corporation, caused by

said principal or his or its agents, servants, or employees

in the construction of said work, or by or in consequence

of any negligence, carelessness or misconduct in guarding

and protecting the same, or from any act of omission of

said Principal or his or its agents, servants, or employees

and if said Principal shall protect and save the Oklahoma

City Housing Authority harmless from all suits and claims

of infringement or alleged infringement or patent rights

or processes; and if said Principal shall pay or cause to be

paid to the Oklahoma City Housing Authority, all damages,

loss and expense which may result by reason of defective

materials and/or workmanship in connection with said

work, occurring within a period of one year from and

after acceptance of said project by the Oklahoma City

Housing Authority; and if said Principal shall save and

hold the Oklahoma City Housing Authority harmless from

all damages, loss and expense occasioned by or resulting

from any failure whatsoever of said Principal, then this

obligation shall be null and void; otherwise to be and re-

main in full force and effect.

If the Principal shall fail or neglect to pay any person,

firm, or corporation for labor, materials, and/or repairs

used on said work, or materials employed or used by said

Principal in performing said contract, within thirty (30)

days after the same becomes due and payable, any such

person, firm or corporation entitled thereto may sue and

recover on this bond, the amount so due and unpaid.

A-48

[APPENDIX)

And. it is further expressly agreed and understood by the

parties hereto, that no changes or alterations in said con-

tract and no deviations from the plan or mode of proced-

ure herein fixed, shall have the effect of releasing the sure-

ties, or any of them from the obligations of this bond.

IN TESTIMONY WHEREOF, the said Principal has

caused these presents to be executed in its name and its

corporate seal to be hereunto affixed by its duly authorized

offices and the said Surety has caused these presents to be

executed in its name, and its corporate seal to be hereunto

affixed by its Attorney-in-Fact, duly authorized so to do,

the day and year first above written.

(SEAL) GLOBE CONSTRUCTION CO.

By: (s) G. K. Ward

Owner, Partner, Vice-President

Principal

ATTEST:

By: (s) Hazel L. Ward

AHOMA COUNTERSIGNING

RESIDENT AGENT

By: (s) Darell Strait

Darell Strait

R. *’. Siegfried Company

P.O. Box 3308

Tulsa, Oklahoma 74101

GENERAL INSURANCE

COMPANY OF AMERICA

Surety Company

By: (s) Robert P. Deering, Jr.

Robert P. Deering, Jr.

Attorney-in-Fact, Surety

1001 T.incoln

Denver, Colorado

A-49

(APPENDIX)

The rate of premium on this bond is $7.50 for the First

$100,000.00, $5.25 thereafter per thousand. The total amount

of premium charged is $4,894.00.

(Accompany this bond with Attorney-in-Fact’s Authority

from the Surety Company certified to include the date of

the bond.)

CERTIFICATE AS TO CORPORATE PRINCIPAL

I, Hazel L. Ward, certify that I am the Secretary and Treas-

urer of the corporation named as Principal in the within

bond; that G. K. Ward, who signed the said bond on behalf

of the Principal was then President of said corporation;

that I know his signature, and his signature thereto is

genuine; and that said bond was duly signed, sealed, and

attested to for and in behalf of said corporation by author-

ity of its governing body.

(s) Hazel L. Ward

(Corporate Seal)

A-50

[APPENDI1IX)}

FILED

JUN 15 1978

HERBERT T. HOPE

CLERK, U.S. DISTRICT COURT

DEPUTY

IN THE UNITED STATES DISTRICT COURT

FOR THE

WESTERN DISTRICT OF OKLAHOMA

GLose ConstrRUCTION CoMPANY, )

Plaintiff, )

vs. ) No. CIV-73-641-C

OKLAHOMA CrTry HovusInc

AUTHoRITY, et al.,

Defendants.

i i

JUDGMENT

This cause comes on for hearing this 6th day of June,

1978, the plaintiff appearing by its attorneys of record, Jud-

son S. Woodruff and John N. Hermes, and the defendant,

Oklahoma City Housing Authority appears by its attorney

of record, William B. Rogers, upon the motion of the de-

fendant Oklahoma City Housing Authority for judgment

as against the plaintiff for punitive damages in the amount

of $250,000.00; and the Court having heard the arguments

of counsel, reviewed the briefs submitted by the parties,

and being fully advised as to the history of these proceed-

ings, finds that the plaintiff Globe Construction Company

is collaterally estopped to deny the existence of facts here-

tofore judicially determined, and resulting in judgment

against the plaintiff's Surety, General Insurance Company

of America on the 30th day of Aoril, 1975. The Court spe-

cifically finds that, essential to the Judgment rendered

herein the 30th day of April, 1975, were findings of fact

that the plaintiff Globe Construction Company fraudulently

induced the defendant Oklahoma City Housing Authority

A-51

[APPENDIX)

to enter into the construction contract involved herein thus

perpetrating a fraud upon such defendant for which " is

entitled to recover punitive damages, actual damages hav-

ing been recovered as against the plaintiff’s Surety on April

30, 1975.

The Court further finds that the Bankruptcy Court

sitting in the United States District Court for the District

of Colorado, in attempting to adjudicate the claim of the

Oklahoma City Housing Authority as against the plaintiff

Globe Construction Company in Case No. 74-B-3023 did

so in complete disregard of this Court’s findings entered

the 4th day of October, 1974; that the purported disposi-

tion of the claim of the Oklahoma City Housing Authority

on its merits was erroneous and should be and is hereby

set aside.

The Court further finds that discharge of Globe Con-

struction Company from its debts in said proceeding for

an arrangement under Chapter XI of the Bankruptcy Act

did not discharge the claim of the Oklahoma City Housing

Authority.

The Court further finds that the purported Release of

Judgment by the defendant, Oklahoma City Housing Au-

thority, was without force or effect, the same being in-

tended by the parties as a vacation of such void judgment

which should not prejudice the right of the defendant to

proceed on the merits of its claim.

The Court further finds that the claim of the Okla-

homa City Housing Authority is not barred by the appli-

cable Statute of Limitations.

IT IS THEREFORE ORDERED, ADJUDGED AND

DECREED by the Court that the defendant Oklahoma City

Housing Authority have and recover judgment against the

plaintiff, Globe Construction Company, in the amount of

$250,000.00 as punitive damages for fraud perpetrated by

A-52

(APPENDIX)

the plaintiff against said defendant, and for costs expended

herein.

DATED this 13th day of June, 1978.

STEPHEN S. CHANDLER

UNITED STATES DISTRICT J UDGE

ENTERED IN JUDGMENT DOCKET ON

JUN 15 1978

ATTEST: A true copy of the original

Herbert T. Hope, Clerk

By (s) Vicki L. Clary

Deputy

APPROVED AS TO FORM:

(s) John N. Hermes

Judson S. Woodruff

John N. Hermes

' Attorneys for plaintiff,

Globe Construction Company

(s) William B. Rogers

William B. Rogers

Attorney for defendant,

Oklahoma City Housing Authority