Appendix — Quinault Pacific Corp. v. Aetna Business Credit, Inc.

Supreme Court brief1980

Ask Donna

What actually matters in this document.

Text

| Supreme Court, Us

80-344 FILED |

. SEP2 1989

~ 80-345 Aiseasuiny 1 cm j

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

QUINAULT PACIFIC CORPORATION,

INTERNATIONAL PAPER COMPANY,

WHITE LUMBER SALES, INC., and

GOLD REY FOREST PRODUCTS, INC., Petitioners,

versus

AETNA BUSINESS CREDIT, INC., and

JOHN C. PENNINGTON, TRUSTEE, Respondents.

QUINAULT PACIFIC CORPORATION, et al., Petitioners,

versus

AETNA BUSINESS CREDIT, INC., et al.. Respondents.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PETITIONERS’ JOINT APPENDIX

WINFORD KENT BISHOP

Attorneys for Petitioners

1835 First National Bank Tower

Two Peachtree Street, N.W.

Atlanta, Georgia 30383

Telephone No. 404/658-1110

Il.

IV.

TABLE OF CONTENTS

Part One: “Fed. R. Civ. P. 60 (b) Case”

Page

Opinion (In re Georgia Paneling Supply, Inc.,

616 F.2d 893 (5th Cir. 1980)) entered May 8,

1980 and delivered upon purported re-

ndering of judgment by the United States

Court of Appeals for the Fifth Circuit whose

decision is sought to be reviewed.......... 1

Other such opinions and orders rendered by

the United States Court of Appeals for the

Fifth Circuit im ti0 CROO. «6 occ ccecencees's 2

A. Order (In re Georgia Paneling Supply,

Inc., 613 F.2d 137 (5th Cir. 1979)) entered

December 26, 1070. 3 «so oe vs Fae 2

B. Opinion (Jn re Georgia Paneling Supply,

Inc., 607 F.2d 117 (5th Cir. 1979)) en-

tered November 19, 1979. ............ 3

Other such opinions and orders rendered by

the United States Court of Appeals for the

Fifth Circuit in a related, prior case. ...... 7

A. Order (In re Georgia Paneling Supply,

Inc., 588 F.2d 93 (5th Cir. 1978)) entered

December 30. 1916s 6. so cue eeu cea 7

B. Opinion (In re Georgia Paneling Supply,

Inc., 581 F.2d 520 (5th Cir. 1978)) entered

Goteber 6, 1678. ia « Sisk cc cece 8

Other such orders rendered by the United

States District Court for the Northern Dis-

trict of Georgia in the Case. ............. 11

A. Order entered June 26,1978. ......... 11

B. Order entered August 26,1977. ....... 13

C. Order entered July 22, 1977........... 15

D. Order entered June 15,1977. ......... 20

VII.

Vill.

Other such orders and opinions rendered by

the United States Bankruptcy Judge/Referee

in Bankruptcy in the case.

A. Order entered December 20,1977. .....

B. Order entered September 23, 1977.

C. Order entered September 16, 1977.

D. Opinion entered January 5, 1978. .....

Other such order rendered by the United

States District Court for the Northern Dis-

trict of Georgia in a related, prior case, to

wit: order entered April 15, 1977..........

Other such order by the United States Bank-

ruptcy Judge/Referee in Bankruptcy in a

related, prior case, to wit: order entered

as a warn 5 6% 0's & ben's Ro

Judgment of the United States Court of Ap-

peals for the Fifth Circuit sought to be re-

viewed and order of said Court on rehearing.

A. Judgment entered July 22, 1980, dated

May 8, 1980 (and issued as mandate:

ge | | ee ern

B. Judgment entered June 20, 1980, dated

November 19, 1979 (issued as mandate):

and retracted by letter of July 22, 1980

I or ae eg ar a

C. Order denying Petition for Rehearing

and Petition for Rehearing En Banc en-

EE ee ee

Part Two: “Fee Award Case”

Opinion (Jn re Georgia Paneling Supply, Inc.,

617 F.2d 293 (5th Cir. Table 1980)) entered

May 9, 1980 and delivered upon purported

rendering of judgment by the United States

Court of Appeals for the Fifth Circuit whose

decision is sought to be reviewed. .........

IT.

Il.

IV.

Other such opinions and orders rendered by

the United States Court of Appeals for the

Fifth Circuit in the case. ................

A. Order (Jn re Georgia Paneling Supply,

Inc., 613 F.2d 312 (5th Cir. Table 1979))

entered December 28, 1979. ..........

B. Opinion (Jn re Georgia Paneling Supply,

Inc., 607 F.2d 1004 (5th Cir. Table 1979))

entered November 9, 1979. ...........

Other such orders rendered by the United

States District Court for the Northern Dis-

trict of Georgia in the case. ..............

A. Order entered August 30,1978. .......

B. Order entered October 13, 1978. .......

C. Order entered February 20,1979. .....

Other such orders and opinions rendered by

the United States Bankruptcy Judge/Referee

in Bankruptcy in the case. ..............

A. Order éntered September 8, 1977. .....

Order entered September 12, 1977.

Order entered September 16, 1977.

Order entered September 23,1977. ....

Order entered February 28,1978. .....

Order entered June 7, 1978. ..........

Ammo O wD

igin CARO lar a eNO im

H. Memorandum entered November 14.

I oer irs Ree Een Tee Yee

Other such orders and opinions rendered by

the United States District Court for the

Northern District of Georgia in a related

pending case not on appeal...............

A. Order entered July 25, 1978 in Pen-

nington, Trustee v. Aetna Business

Credit, Inc., et al., Civil Action No. C75-

1540A (filed August 1975). ...........

142

VI.

IT.

B. Order entered March 30, 1978 in Pen-

nington, Trustee v. Aetna Business

Credit, Inc., et al., Civil Action No. C75-

1540A (filed August 1975) ............

C. Order entered September 30, 1976 in

Pennington, Trustee v. Aetna Business

Credit, Inc., et al., Civil Action No.C75-

1540A (filed August 1975). ...........

Judgment of the United States Court of Ap-

peals for the Fifth Circuit sought to be re-

viewed and order of said Court on rehearing.

A. Judgment entered July 22, 1980, dated

May 9, 1980 (and issued as mandate:

June 20, 1980 [sic]) .................

B. Judgment entered June 20, 1980, dated

November 9, 1979 (issued as mandate)

and retracted by letter of July 22, 1980.

C. Order denying Petition for Rehearing

and Petition for Rehearing En Banc en-

Comer rue S, TOGO. ge vi ks cas can

143

152

163

164

167

Part Three: Constitutional Provisions, Statutes,

Regulations etc. Involved in These Cases

C. Article The Fifth (Fifth Amendment) ...

D. Article The Sixth (Sixth Amendment). . .

RR oy et er ey

3. Bankruptcy Act of 1898, as amended

Section 41 (11 U.S.C. Sec. 69).......

. Bankruptcy Code of 1978...........

Section 252 (28 U.S.C.A. Sec. 1481)

5. 18 U.S.C. Sec. 401 (1970)...........

6. 18 U.S.C. Sec. 402 (1970)...........

BD. Gomme Bhatebee ..w 2 nc cc ccc wens.

1. Georgia Code Annotated Sec. 109A-

rr rrr re rrr

rere er rer er

III. Regulations, Rules, Ethical Precepts.......

i Ne aa ks aan kk ORS

1. Code of Judicial Conduct...........

2. Canons of Judicial Ethics

TS & © eer wrerssr wee

3. Rules and Regulations for the Organi-

zation and Government of the State

Bar of Georgia

(241 Ga. 643 (1978) et seq.) .........

(1) EC 1-4, DR 1-102

(2) EC 7-35, DR 7-102, DR 7-110

(3) EC 8-5, EC 8-6, Georgia Standard

(4) DR 4-101 B, Georgia Standard 28

Bankruptcy Rules of Procedure

ON Re ree

Local Rules of the United States District

Court for the Northern District of Geor-

Ee ren re

Rules 91.8, 351.1

Rules 71.34, 71.54

Federal Rules of Appellate Procedure

Rule 4(a), 6(a), 35, 40(a)

Federal Rules of Civil Procedure.......

Rule 38, 54 (b), 60(b)

Federal Rules of Evidence.............

Rule 408

190

191

192

206

207

214

219

221

IV.

Pleading and Motion Filed by Aetna Busi-

ness Credit, Inc. in Related Lower Court

RSE TARR ine a Pat ala Aa en

Counterclaim, filed October 25, 1977 in

Pennington v. Aetna Business Credit,

Inc., Civil Action No. C75-1540A (N.D.

Te”. | ae

Motion for Reconsideration, filed Janu-

ary 19, 1978 (14 days after “Opinion” in

60(b) Motion), in Hampton Lumber Sales

Co. v. Aetna Business Credit, Inc., Civil

Action No. C’/4-1679A (N.D. Ga., August

BLASTS AS ea eee Men aE

Miscellaneous.................eceecece,

Chronological Events from Official

Bankruptcy Records of Georgia Paneling

Supply, Inc., Bankrupt No. B74-1628A

and Referee’s Calendars for September

19, 1977 and February 14,1978 .......

Critique of Jn re Dekle and In re Boyd,

308 So.2d 13, 5 (Fla. 1975).............

. Affidavit of Sandra Jean Thomas on.

Part Four: Analytical Tables

Table I (Analysis of Stipulation Between

Freeman & Hawkins and Appellants). . .

Table II (Analysis of Trustee's Applica-

tien for Fee Award) ................:.

Table III (Analysis of Aetna’s Applica-

tions for Fee Awards) ................

Table IV (Comparative Analysis of Fee

| RRR ily SS CR Gre ODD

222

229

242

257

260

263

266

267

270

Part One: “Fed. R. Civ. P. 60(b) Case”

MEMORANDUM DECISIONS

Cite as 616 F.2d (1980)

In the Matter of

GEORGIA PANELING SUPPLY, INC.

Bankrupt.

INTERNATIONAL PAPER COMPANY

White Lumber Sales, Inc., Quinault Pacific Corporation

and Gold Rey Forest Products, Inc., Appellants,

JOHN C. PENNINGTON

Trustee and Aetna Business Credit, Inc., Appellees.

No. 79-1076.

United States Court of Appeals, Fifth Circuit.

May 8, 1980.

Appeal from the United States District Court for the

Northern District of Georgia; RICHARD C. FREEMAN,

Judge.

Winford Kent Bishop, Atlanta, Ga., Ben R. Swank, Jr.,,

Kansas City, Mo., for appellants.

Douglas L. Cronkright, C. Edward Dobbs, R. William

Ide, III, John C. Pennington, Atlanta, Ga., for appellees.

Before HATCHETT and TATE, Circuit Judges and

GROOMS", District Judge.

PER CURIAM:

Rehearing was granted, 613 F.2d 137 (5 Cir. 1979),

vacating our panel opinion, 607 F.2d 117 (5 Cir. 1979),

which had affirmed the ruling of the district court. The

district court affirmed the bankruptcy court’s denial of the

appellant’s Fed.R.Civ.P. 60(b) motion seeking relief from a

judgment of the district court approving a settlement by

the trustee previously approved by the bankruptcy court.

After reviewing the contentions of the appellants once

again in the light of the record, we reinstate the prior

panel opinion. The appellee's motion for assessment of

attorney fees against the appellants for frivolous appeal is

denied.

AFFIRMED.

“District Judge of the Northern District of Ala., sitting by designation.

MEMORANDUM DECISIONS

Cite as 613 F.2d (1979)

In the Matter of

GEORGIA PANELING SUPPLY, INC.

Bankrupt.

INTERNATIONAL PAPER COMPANY

White Lumber Sales, Inc., Quinault Pacific Corporation

and Gold Rey Forest Products, Inc., Appellants,

JOHN C. PENNINGTON

Trustee and Aetna Business Credit, Inc., Appellees.

No. 79-1076.

United States Court of Appeals, Fifth Circuit.

Dec. 28, 1979.

Appeal from the United States District Court for the

Northern District of Georgia; Richard C. Freeman, Judge.

Winford Kent Bishop, Atlanta, Ga., for appellants.

Douglas L. Cronkright, C. Edward Dobbs, R. William

Ide, III, John C. Pennington, Atlanta, Ga., for appellees.

Before GODBOLD, REAVLEY and ANDERSON, Circuit

Judges.

BY THE COURT:

IT IS ORDERED that petitioners’ motion for rehearing

is GRANTED and the prior panel opinion, 607 F.2d 117, is

hereby VACATED.

IF IS FURTHER ORDERED that this matter be placed

upon the oral argument calendar.

MATTER OF GEORGIA PANELING SUPPLY, INC.

Cite as 607 F.2d 117 (1979)

In the Matter of

GEORGIA PANELING SUPPLY, INC.

Bankrupt.

INTERNATIONAL PAPER COMPANY

Hampton Lumber Sales Company,

White Lumber Sales, Inc., Quinault Pacific Corporation

and Gold Rey Forest Products, Inc., Appellants,

JOHN C. PENNINGTON

Trustee and Aetna Business Credit, Inc., Appellees.

No. 79-1076.

Summary Calendar.*

United States Court of Appeals, Fifth Circuit.

Nov. 19, 1979.

A bankruptcy court denied a motion made by five unse-

cured creditors of bankrupt seeking relief from judgment

approving settlement by trustee and creditor. The United

States District Court for the Northern District of Georgia,

Richard C. Freeman, J., affirmed. On appeal, the Court of

Appeals held that: (1) allegations of misconduct on part of

bankruptcy judge and district court judge were unfounded,

and (2) unsecured creditors were not entitled to relief from

judgment on ground of newly discovered evidence, miscon-

duct, or any other reason.

AFFIRMED.

1. Federal Civil Procedure ##2662.

Allegations of misconduct on part of bankruptcy judge

and district court judge involving denial of motion seeking

relief from judgment approving settlement by trustee and

creditor and affirmance of that judgment were unfounded.

2. Federal Civil Procedure ##2655

Where facts surrounding charges of impropriety should

have been known to unsecured creditors prior to bank-

ruptcy court’ approval of settlement, such facts did not

constitute newly discovered evidence so as to entitle unse-

cured creditors to relief from judgment of bankruptcy court

approving settlement. Fed. Rules Civ. Proc. Rule 60(b)(2)

28 U.S.C.A.

3. Federal Civil Procedure ##2651

Allegations of misconduct by trustee and creditor with

respect to judgment of bankruptcy court approving settle-

ment were unsupported by record so as to entitle unse-

cured creditors to relief from judgment on grounds of

misconduct of adverse party. Fed. Rules Civ. Proc. Rule

60(b)\(3), 28 U.S.C.A.

4. Federal Civil Procedure ##2651

Unsecured creditors of bankrupt were not entitled to a

relief from judgment of bankruptcy court approving settle-

ment by trustee and creditor on general grounds. Fed.

Rules Civ. Proc. Rule 60(b)(6), 28 U.S.C.A.

Winford Kent Bishop, Atlanta, Ga., for appellants.

Douglas L. Cronkright, C. Edward Dobbs, R. William

Ide, III, John C. Pennington, Atlanta, Ga., for appellees.

Appeal from the United States District Court for the

Northern District of Georgia.

Before GODBOLD, REAVLEY and ANDERSON, Circuit

Judges.

PER CURIAM:

Appellants are five unsecured creditors of the bankrupt,

Georgia Paneling Supply, Inc. Their current posture re-

sults from a denial by the bankruptcy court of their Fed. R.

Civ. P. 60(b) motion seeking relief from a judgment

of that court approving a settlement by the trustee and

Aetna Business Credit, Inc. (“Aetna”). On appeal, the

district court affirmed the bankruptcy court. An earlier

attempt to appeal to this court failed when leave to appeal

was denied. Jn re Georgia Paneling Supply, Inc., 581 F.2d

520 (5th Cir. 1978). Alleging judicial misconduct in the

petition for rehearing, appellants then won leave to appeal

and a vacation of the previous opinion. Jn re Georgia

Paneling Supply, Inc., 588 F.2d 93 (5th Cir. 1978).

The charges of judicial impropriety are that the bank-

ruptcy judge demonstrated partiality, lacked judicial integ-

rity, and made materially misleading statements. The

bankruptcy judge is also alleged to have engaged in ex

parte discussions with appellees and their counsel, permit-

ted orders and an opinion to be drafted and typed by

appellees or their counsel, and misrepresented the facts

regarding this alleged misbehavior. Appellants also argue

that the district judge's affirmance is entitled to no weight

because he engaged in various acts of misbehavior.

[1] A careful examination of the record, especially those

portions cited by appellants, reveals no impropriety. The

allegations of misconduct are unfounded.

[2] Appellants also claim entitlement to relief pursuant

to Fed. R. Civ. P. 60(b)(2), (3), and (6) for various other

reasons. The petition for leave to appeal, which was denied

earlier, focused upon alleged collusion between the bank-

ruptcy judge, the trustee and counsel for Aetna. They now

shift their attack under Rule 60(b)(2), and allege that

Aetna wrongfully retained certain fire insurance proceeds

and improperly seized collateral of the bankrupt. The facts

surrounding both charges should have been known to

appellants prior to the bankruptcy court’s approval of the

settlement. They do not constitute newly discovered evi-

dence. Moreover, the claim that inventory collateral was

wrongfully seized is improperly raised for the first time on

appeal. Pierre v. United States, 525 F.2d 933, 936 (5th Cir.

1976).

[3] The request for relief under Rule 60(b)(3) is premised

upon numerous allegations of misconduct by the trustee

and Aetna. We find that the charges are either unsup-

ported by the record or concern actions which did not

prejudice appellants.

[4] Finally, Fed. R. Civ. P. 60(b)(6) will not afford appel-

lants any comfort. First, this theory was abandoned earlier

in this suit and is not properly before us on appeal.

Appellants’ first petition for relief under Rule 60(b) was

made to the district court and included a request for relief

under Rule 60(b)(6). That court denied relief. Upon peti-

tion for reconsideraton, the district court remanded to the

bankruptcy court for a hearing on claims under Rule

60(b)(1), (2), and (3). Appellants never pressed a Rule

60(b)(6) claim after their initial petition in the district

court until the instant appeal. See Pierre, supra. Moreover,

the charges leveled under this final theory for relief are

either conclusory or unsupported by the record.

For the foregoing reasons, the judgment of the district

court is AFFIRMED.

*Fed.R.App.P. 34(a); 5th Cir.R. 18

In the Matter of

GEORGIA PANELING SUPPLY, INC.

Bankrupt.

INTERNATIONAL PAPER COMPANY

Hampton Lumber Sales Company,

White Lumber Sales, Inc., Quinault Pacific Corporation

and Gold Rey Forest Products, Inc., Petitioners,

¥.

JOHN C. PENNINGTON

Trustee and Aetna Business Credit, Inc., Repondents.

No. 78-8283.

United States Court of Appeals. Fifth Circuit.

Dec. 29, 1978.

Petition for Leave to Appeal from An Order Affirming

Bankruptcy Court’s Denial of a Rule 60\b) FR.Civ.P. Mo-

tion; Richard C. Freeman, Judge.

Winford Kent Bishop, Atlanta, Ga., for petitioners.

Douglas L. Cronkright, C. Edward Dobbs, John C. Pen-

nington, Atlanta, Ga., for repondents.

ON PETITION FOR REHEARING AND

PETITION FOR REHEARING

EN BANC

Before GODBOLD, RONEY and RUBIN, Circuit

Judges.

ORDER:

Because of the allegations of judical misconduct con-

tained in the petition for rehearing, the panel has decided

that the rehearing should be granted, that the previous

panel opinion, 581 F.2d 520, should be vacated, and that

leave to appeal should be granted.

No member of this panel nor Judge in regular active

service on the Court having requestea that the Court be

polled on rehearing en banc, (Rule 35 Federal Rules of

Appellate Procedure; Local Fifth Circuit Rule 16) the Peti-

tion for Rehearing En Banc is DENIED..

It is so ordered.

MATTER OF GEORGIA PANELING SUPPLY, INC.

Cite as 581 F. 2d 520 (1978)

In the Matter of

GEORGIA PANELING SUPPLY, INC.

Bankrupt.

INTERNATIONAL PAPER COMPANY

Hampton Lumber Sales Company,

White Lumber Sales, Inc., Quinault Pacific Corporation

and Gold Rey Forest Products, Inc., Petitioners,

JOHN C. PENNINGTON

Trustee and Aetna Business Credit, Inc., Respondents.

No. 78-8283.

United States Court of Appeals, Fifth Circuit.

Oct. 5, 1978.

The United States District Court for the Northern Dis-

trict of Georgia, Richard C. Freeman, J., affirmed the

Bankruptcy Court’s denial of a motion for a new trial.

Petition for leave to appeal was filed. The Court of Appeals

held that there was no compelling reason for further re-

view and no showing of likelihood of success in such an

eventuality.

Appeal denied.

1. Federal Courts ##660

Action upon motion for leave to appeal is entrusted to

court's sound discretion. Fed. Rules App. Proc. rule 6, 28

U.S.C.A.

2. Federal Courts ##825

District court’s determination on a motion for new trial

will not be disturbed absent clear abuse of discretion. Fed.

Rules Civ. Proc. Rule 60(b), 28 U.S.C.A.

3. Bankruptcy ##467(4)

On review, a judgment of district court affirming bank-

ruptcy court’s determination based on findings of fact will

not be disturbed unless findings are clearly erroneous;

such findings are presumptively correct where court con-

siders conflicting evidence.

4. Bankruptcy ##252

Occurrence of ex parte conferences between bankruptcy

judge, trustee, and lawyer alone do not demonstrate collu-

sion in the approval of trustee’s settlement of suit. 28

U.S.C.A. Sec. 455.

Winford Kent Bishop, Atlanta, Ga., for petitioners.

Douglas L. Cronkright, C. Edward Dobbs, Atlanta, Ga.,

for respondents.

John C. Pennington, pro se.

Petition for Leave to Appeal from An Order Affirming

Bankrutpcy Court’s Denial of a Rule 60(b) F. R. Civ. P.

Motion.

Before GODBOLD, RONEY and RUBIN, Circuit Judges.

BY THE COURT:

Alleging the discovery of new evidence which could not

by due diligence have been discovered in time to move for

a new trial, petitioners sought relief in the bankruptcy

court under Fed. R. Civ. P. 60(b)(2). Upon denial of their

motion, they appealed to the district court which affirmed.

They now petition this Court for leave to appeal. FR.A.P.

6; 11 U.S.C.A. Sec. 47. Finding no claim which would

warrant the exercise of our discretion to allow an appeal,

we deny the petition.

[1] Action upon a motion for leave to appeal under Rule

6 is entrusted to the Court’s sound discretion. Jn re

Hawkins Mortgage Co., 66 F.2d 16 (7th Cir. 1933), cert.

denied sub nom., Harter v. Wallace, 291 U.S. 659, 54 S.Ct.

376, 78 L.Ed. 1051 (1934). Where, for example, the ques-

tion presented is not of sufficient importance, leave to

appeal has been refused. New York Credit Men’s Adjust-

ment Bureau, Inc. v. David Strauss & Co., 296 F.2d 702 (2d

Cir. 1961).

[2] In the instant case, we find neither procedural nor

substantive basis for further review. A determination on

Fed. R. Civ. P. 60(b) will not be disturbed absent clear

abuse of discretion. Pagan v. American Airlines, Inc., 534

F.2d 990 (1st Cir. 1976); Martin v. H.M.B. Construction Co.,

279 F2d 495 (5th Cir. 1960); Darlington v. Studebaker-

Packard Corp., 291 F.2d 903 (7th Cir.), cert. denied, 359

U.S. 992, 79 S.Ct. 1121, 3 L.Ed.2d 980 (1959). This stan-

dard, stringent upon an initial review, can only be more

difficult to meet where a second review is sought. It has

not been met here.

[3] Petitioners rest their claim of abuse upon what they

view as the compelling merits of the case, thereby seeking

to obtain a review of the merits on this motion. Upon

review, a judgment of the district court affirming the

bankruptcy court’s determination based on findings of fact

will not be disturbed unless the findings are clearly erro-

neous. Sears, Roebuck & Co. v. Boydston, 520 F.2d 1098,

1100 (5th Cir. 1975); Porterfield v. Gerstel, 249 F.2d 634

(5th Cir. 1957). Such findings are presumptively correct in

a situation such as is here presented, where the lower

court considers conflicting evidence.

[4] Petitioners have not demonstrated that there is clear

error in the bankruptcy judge's approval of the trustee's

settlement of the suit against Aetna Business Credit, Inc.

The charges of collusion between the bankruptcy judge,

the trustee, and the lawyer for Aetna are conclusional.

Moreover, petitioners have failed to file an affidavit stat-

ing the facts and reasons for the belief that bias or preju-

dice exists and a certificate of counsel showing good faith

as required by 28 U.S.C.A. Sec. 144. Neither have peti-

tioners shown that there exists the requisite extrajudicial

basis of prejudice and bias under 28 U.S.C.A. Sec. 455.

Davis v. Board of School Commissioners, 517 F.2d 1044,

1052 (5th Cir. 1975), cert. denied, 425 U.S. 944, 96 S.Ct.

1685, 48 L.Ed.2d 188 (1976). The occurrence of ex parte

conferences between the bankruptcy judge, the trustee,

and Aetna’s lawyer alone do not demonstrate collusion.

Martelli v. City of Sonoma, 359 F. Supp. 397 (N.D.Cal.

1973).

In sum, where there is no compelling reason for further

review and no showing of likelihood of success in such an

eventuality, we decline to exercise our discretion to grant

review. Accordingly, the motion for leave to appeal is

denied.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

) IN RE: GEORGIA PANELING SUPPLY, INC.

B74-1628

[Filed June 26, 1978]

ORDER

This bankruptcy appeal is presently before the court on

intervenors’ appeal from the bankruptcy court’s order of

December 20, 1977, and opinion of January 5, 1978, deny-

ing the appellants’ motion for relief from the bankruptcy

court's order of June 17, 1976, approving the trustee's

application to compromise and settle.

On August 25, 1977, this court remanded the action to

the bankruptcy court solely for consideration of appellants’

asserted grounds for relief under Rule 60(b)(1), (2) and (3),

Fed. R. Civ. P. Specifically, the rule provides as follows:

On motion and upon such terms as are just, the

court may relieve a party or his legal representa-

tive from a final judgment, order, or proceeding

from [sic] the following reasons: (1) mistake, in-

advertence, surprise, or excusable neglect; (2)

newly discovered evidence which by due diligence

could not have been discovered in time to move

from a new trial under Rule 59(b); (3) fraud

(whether heretofore denominated intrinsic or ex-

trinsic), misrepresentation, or other misconduct

/ of an adverse party;...

The propriety of granting relief under all three of these

subsections is addressed to the sound discretion of the

court, Hand v. United States, 441 F.2d 529 (5th Cir. 1971)

and must be balanced against the competing interest of

t achieving finality in litigation, see In Re Casco Chemical

Co., 335 F.2d 645 (5th Cir. 1964).

The major thrust of appellants’ argument fell under the

“newly discovered evidence” heading of Rule 60(b)(2). Un-

der this heading, the evidence must be “newly discovered”

in the sense of not being in the possession of the movant

before the order was entered, see Kolstad v. United States,

262 F.2d 839 (9th Cir. 1959). In addition, it must be not

merely cumulative but rather such as probably would

produce a different outcome and it must be evidence that

could not have been discovered by “due diligence” prior to

the hearing or in time to move for a new trial. Flett v. W. A.

Alexander & Co., 302 F.2d 321 (7th Cir.), cert. denied, 371

U.S. 841 (1962).

Appellants were afforded more than a full day to present

their evidence. In an opinion measuring forty pages in

length, the bankruptcy court carefully sifted the evidence

and concluded that appellants could not carry their burden

under any of the three pertinent subsections of Rule 60(b).

Specifically, the bankruptcy court found inter alia: (1) that

there was little or no evidence that the subject Joan had

been made to a sister corporation rather than to the

bankrupt: and (2) that appellants’ “newly discovered evi-

dence” consisted not of new evidence but rather of different

legal theories attached to the same facts. After a careful

independent review of the evidence and the bankruptcy

court’s order of January 5, 1977 [sic], we cannot conclude

that these findings of fact were “clearly erroneous.” See

Rule 810 of the Rules of Bankruptcy Procedure.

Accordingly, for the reasons hereinabove expressed, the

bankruptcy court’s order of December 20, 1977, and opin-

ion of January 5, 1978, are hereby AFFIRMED.

IT IS SO ORDERED.

This, the 23rd day of June, 1978.

/s/ RICHARD C. FREEMAN

UNITED STATES DISTRICT JUDGE

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

IN RE: GEORGIA PANELING SUPPLY, INC.

B74-1628

[Filed August 26, 1977]

ORDER

It has come to the attention of this court that, contrary

to the representations of appellants’ counsel at the in

camera hearing held on July 19, 1977, the date upon which

the challenged order was entered was June 17, 1976,

rather than May 18, 1976. Accordingly, appellants’ motion

under Rule 60(b)(1), (2), and (3), Fed. R. Civ. P, which was

made on May 31, 1977, was within the one year maximum

period for the filing of such motions. See 7 J. W. Moore,

Moore’s Federal Practice, Sec. 60.22{4] (1977). In addition,

we cannot say on the record presently before this court

that the subject motion so prejudiced appellees as to war-

rant a finding that it was not otherwise filed within a

reasonable time. See 11 C. Wright and A. Miller, Federal

Practice and Procedure, Sec. 2866 at 229-230 (1971). Nev-

ertheless, as we indicated in our previous order, appellants

factual allegations should be considered in the first in-

stance by the bankruptcy judge who initially performed

the function of fact finder in this action.

Accordingly, this court’s order of July 22, 1977 insofar as

it applies to appellants’ motion under Rule 60(b)(1), (2) and

(3) is hereby VACATED and the instant action is hereby

ORDERED to be REMANDED to the bankruptcy court for

an evidentiary hearing upon the question of whether ap-

pellants can carry their heavy burden of demonstrating

grounds for relief under Rule 60(b)(1), (2) or (3) which

would warrant setting aside the judgment of the bank-

ruptcy court of June 17, 1976. If such grounds are found,

the bankruptcy judge is hereby DIRECTED to enter the

appropriate findings of fact and conclusions of law and to

apply to this court for leave to amend our mandate of

affirmance to the extent that any conflict therewith may

be found to exist.

IT IS SO ORDERED.

This, the 25th day of August, 1977.

s/ RICHARD C. FREEMAN

UNITED STATES DISTRICT JUDGE

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

In the Matter of:

GEORGIA PANELING SUPPLY, INC.

Bankruptcy Case No. B74-1628A

[Filed July 22, 1977]

ORDER

This bankruptcy appeal is presently before the court on

the motions filed by several unsecured creditors of the

bankrupt under Rule 60(b), Fed. R. Civ. P, to relieve

appellants from this court’s order of April 15, 1977, affirm-

ing the bankruptcy judge's approval of the trustee’s settle-

ment. Appellant's original motion and four subsequent

amendments rely upon grounds specified in Rule 60(b)

including: (1) mistake, inadvertence, surprise, or excusable

neglect; (2) newly discovered evidence which by due dili-

gence could not have been discovered in time to move for a

new tria! under Rule 59(b). Fed. R. Civ. P; (3) fraud,

misrepresentation or other misconduct of appellees; and (4)

other reasons allegedly justifying relief from the operation

of the judgment.

At a hearing held in camera on July 19, 1977, threshold

issues concerning the jurisdiction of this court and the

timeliness of the subject motion were raised. Accordingly,

this court will consider the subject of appellants’ motion

only if we first conclude that appellees’ threshold argu-

ments are without merit.

THE JURISDICTION OF THIS COURT

TO ENTERTAIN APPELLANTS’ MOTION UNDER

RULE 60(b) FED. R. CIV. P.

Appellants argue in essence that, under the “plain

meaning” of Rule 60(b), Fed. R. Civ. P., any court, includ-

ing this court, sitting in its appellate function in the

instant bankruptcy proceeding may vacate one of its prior

orders for any of the reasons specified in the rule. In

addition, appellants argue that since the bankruptcy court

in this district is not a separate court but rather a division

of the district court, filing the subject motion in the district

could not have been error.

Appellees in turn argue that a motion under Rule 60(b)

must be filed in the court which entered “judgment”; in

this case the bankruptcy court. The gravamen of appellees’

argument is that when this court, sitting in an appellate

function, affirmed the order of the bankruptcy court, it

surrendered jurisdiction over the subject action in favor of

the bankruptcy court. Therefore, while the bankruptcy

court could not properly have revised its own judgment, or

a fortiori that of the district court, without first obtaining

the leave of this court, Warner v. City of Bay, St. Louis, 526

F2d 1211 (5th Cir. 1976); Graves v. Kaiser Aluminum and

Chemical Co., 528 F.2d 1360 (5th Cir. 1976), the bank-

ruptcy court was nevertheless the only court with jurisdic-

tion to entertain the motion in the first instance.

Accordingly, this court is directly confronted with the

question of whether or not we have jurisdiction to enter-

tain a motion to set aside a “judgment” or order of this

court in a bankruptcy proceeding after this court has

already affirmed the ruling of the bankruptcy judge upon

appeal.

In Dickerson v. Continental Oil Co., 476 F.2d 635 (5th

Cir. 1973) the district court upon remand added interest to

a judgment in favor of an intervening compensation car-

rier and the ruling was appealed. In a ner curiam opinion

the Court of Appeals suggested the proper procedure would

be to direct a post-judgment-post-mandate request to the

Court of Appeals. However, the court also noted that the

result flowed from the mandate rather than from “any

actual or supposed” restrictions on Rule 60/b) post-

judgment relief. Jd. at 636. Therefore, the court implicitly

assumed that the trial court was the appropriate court in

which to lodge the Rule 60(b) motion.

In A. G. Pro, Inc. v. Sakaraida, 481 F.2d 668 (5th Cir.

1973), a patent infringement action, a claim of newly

discovered evidence under Rule 60(b)\(2), Fed. R. Civ. P.,

was raised after the Court of Appeals rendered the deci-

sion but before the issuance of the mandate. The Court of

Appeals then reaffirmed the decision but remanded the

action to the district court for consideration of the Rule

60(b)(2) motion. Therefore, the Court of Appeals essen-

tially followed Dickerson once more and concluded that the

trial court was the proper court in which to consider such

an evidentiary allegation.

There is logic in the position which the Court of Appeals

has adopted — especially when the gravamen of an appel-

lants’ motion is that newly discovered evidence within the

meaning of Rule 60(b)(2) has become available. In the

latter instance, the argument is not that any mistake of

law or fact was made by the trial or appellate courts.

Instead, the thrust of the argument is that the record

below was inadequately developed and needs supplementa-

tion. Therefore, it would be incongruous and somewhat

unseemly for the appellate court to usurp the function of

the trial court by effectively taking additional evidence

and then attempting to determine in the first instance

what result that evidence mandates. Nevertheless, the

foregoing case authority clearly suggests that once the

trial court ruling is affirmed upon appeal, leave of the

appellate court must be obtained before a Rule 60(b) mo-

tion may be entertained upon its merits. However, this

court cannot definitively say in light of the divisional

status of the bankruptcy court in this district, that appel-

lants Rule 60(b) motion could not properly have been

construed as a motion for leave to file a Rule 60(b) motion

with the bankruptcy court. Accordingly, consideration of

appellees’ untimeliness argument is warranted.

THE TIMELINESS OF APPELLANTS’

RULE 60(b) MOTION

Appellants putative claims sound under Rule 60(b) Sec-

tions (1), (2), (3) and (6). At the in camera hearing held on

July 19, 1977, appellants admitted that the judgment of

which they complain was entered on May 18, 1976, and

that the subject motion was not filed until May 31, 1977.

The second sentence of Rule 60(b), Fed. R. Civ. P.

states that [sic]:

The motion shall be made within a reasonable

time, and for reasons (1), (2) and (3) not more

than one year after the judgment, order or pro-

ceeding was entered or taken.

Authorities agree that the “reasonableness” requirement

operates only within the one year period and that one year

is a maximum time beyond which no proceeding under this

clause can be maintained. Bershad v. McDonald, 469 F.2d

1333 (7th Cir. 1972); Greater Boston Television Corp. v.

F-C.C., 463 F.2d 268 (D.C. Cir. 1971); 11 C. Wright and A.

Miller, Federal Practice and Procedure, Sec. 2866 at 222

(1971). Accordingly, this court may not consider the merits

of appellants claims under Rule 60(b) Sections (1), (2) and

(3).

Appellants’ sole remaining claim upon the merits is that

there are “other reasons” within the meaning of Rule

60(b)(6) which justify relief in the instant action. It is clear

under this clause that the sole limitation upon the timeli-

ness of such a motion is reasonableness, Armor & Co. v.

Nard, 56 F.R.D. 610 (D.C. Iowa 1972); 11 C. Wright and A.

Miller, Federal Pratice and Procedure, Section 2866 at 232

(1971), and that the court must consider whether relief

under clause (6) will further justice without affecting sub-

stantial rights of the parties. U.S. v. Cato Brothers, Inc.,

273 F2d 153 (4th Cir. 1959). In the instant action, this

court, in the exercise of its discretion, see 11 C. Wright and

A. Miller, Federal Practice and Procedure, Sec. 2857 (1971),

is not persuaded that appellants can meet the foregoing

test.

First, a perusal of the argument and documents submit-

ted by appellants, reveals that regardless of how they

attempt to characterize their claims, appellants have de-

monstrated at most,newly discovered evidence rather than

the extreme circumstances which make relief under Rule

60(b)(6) appropriate. Klapprott v. United States, 335 U.S.

601 (1949) (incarceration during the period of the action

resulting in a default judgment cancelling appellants’ nat-

uralization certificate); United States v. Karahalias, 205

F.2d 331 (2nd Cir. 1953) (absence from the country and an

intervening war prevented appellant from defending a

denaturalization proceeding); Menjer v. United States, 405

F.2d 245 (5th Cir. 1968); Brothers, Inc. v. W. E. Grace

Manufacturing Co., 320 F.2d 594 (5th Cir. 1963); Crane uv.

Kerr, 53 FR.D. 311 (N.D. Ga. 1971).

Second, the better view is that clauses (1) through (3)

and clause (6) present grounds which are mutually exclu-

sive. Therefore, appellants may not accumulate charges

under the former sections and allege that they amount to a

violation of the latter. Transit Casualty Co. v. Security

Trust Co., 441 F.2d 788 (5th Cir. 1971), cert. denied, 404

U.S. 883; Gulf Coast Building & Supply Co. v. Interna-

tional Board of Electrical Workers, Local 480, ALF-CIO,

460 F.2d 105 (5th Cir. 1972). In addition, appellant should

not be allowed to use the subject Rule 60(b)(6) motion as a

substitute for the appeal which appellants failed to timely

file. See 7 J. W. Moore, Moore's Federal Practice, Section

60.18[8] (1976).

Finally, we must conclude that the interests of justice

would not be served by considering and granting appel-

lants’ motion under Rule 60(b)(6). Appellants asserted at

the in camera hearing on July 19, 1977 that the main body

of this action which was not affected by the challenged

order is nearly ready to be tried and that appellants have

individual actions presently pending against Aetna Busi-

ness Credit, Inc. In view of these circumstances, we must

conclude alternatively that appellants’ motion was not

filed within a “reasonable time” and/or that the motion is

now barred by laches. The foregoing decision pretermits

consideration of appellants’ motion upon the merits.

Accordingly, for all the reasons hereinabove expressed,

appellants’ motion for relief from judgment under Rule

60(b)(1), (2), (3) and (6), Fed. R. Civ. P. is hereby DENIED.

IT IS SO ORDERED.

This, the 22nd day of July, 1977.

/s/) RICHARD C. FREEMAN

UNITED STATES DISTRICT JUDGE

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

IN RE: GEORGIA PANELING SUPPLY, INC.

B74-1628A

[Filed June 15, 1977]

ORDER

On April 15, 1977, this court entered an order in an

appeal from the bankruptcy court affirming the bank-

ruptcy judge’s order approving the trustee's application to

compromise and settle the bankrupt’s claims against

Aetna Business Credit, Inc. in a plenary action pending

before this court styled Pennington, Trustee v. Aetna Busi-

ness Credit, Inc: et al., Civil Action No.75-1540A. The

action is presently pending before this court on motions

filed by several unsecured creditors of the bankrupt (1) for

an extension of time in which to file a notice of appeal from

this court’s order until June 15, 1977, and further (2) upon

such creditors’ “motion to relieve appellants from the order

of April 15, 1977, affirming the bankruptcy judge’s ap-

proval of the trustee’s settlement,” filed pursuant to Rule

60(b).

In support of their motion to extend time for appeal, the

putative appellants rely on three grounds: (1) excusable

neglect; (2) misconduct by an adverse party in the related

plenary acton; and (3) the interest of a just, speedy, and

inexpensive determination of the issues involved. At the

outset, it appears that both parties agree as to the applica-

bility of Rule 4(a), Fed. R. App. P., which provides that in

appeals taken as of right, a notice of appeal must be filed

with the clerk of the district court within 30 days from the

date of the judgment or order appealed from. However,

Rule 4(a) also allows the district judge, in the exercise of

his discretion, to extend the time for filing the notice of

appeal an additional thirty days upon a showing of “excus-

able neglect.”

The parameters of what facts and circumstances consti-

tute excusable neglect is not entirely clear; however, resort

to the historical development of the instant rule is appro-

priate. Prior to 1966, former Rule 73(a), Fed. R. Civ. P,

authorized a district court to extend the time for appeal

only “upon a showing of excusable neglect based on a

failure of a party to learn of the entry of judgment.” While

it is clear that a finding of excusable neglect is not re-

stricted solely to the foregoing ground, it is likewise clear.

as observed by the Advisory Committee on the Federal

Rules in 1966, that “the district court should have the

power to permit the notice to be filed out of time [only] in

extraordinary cases where injustice would otherwise re-

sult.” Professor Moore, relying on the examples accom-

panying former Rule 27/22), Fed. R. Crim. P., posits the

following illustrations of what may constitute “excusable

neglect” for purposes of allowing an out-of-time appeal:

disability of the person to whom the notice has

been entrusted for filing by reason of sudden

illness; ... unusual and uncontrollable delay in

transmission by mail... death of a party

entitled to appeal before appeal is taken, or the

death or disablity of the a..orney for a party

under circumstances which might prevent the

timely filing of a notice of appeal.

J. W. Moore, Moore's Federal Practice, Sec. 204.13{1] at

972-73 (1976).

It is clear, however, the mere negligence on the part of

an attorney, i.e., where a heavy workload causes him to

overlook the time for filing an appeal does not constitute

excusable neglect warranting relief from the thirty-day

filing requirement. E.g., Maryland Casualty Co. v. Conner,

382 F.2d 13 (10th Cir. 1967); Buckley v. United States, 382

F2d 611 (10th Cir.) cert. denied, 390 U.S. 996 (1967).

Likewise, counsel's lack of familiarity with local practice

or his misreading of procedural rules does not constitute

excusable neglect. E.g., Buckley v. United States, supra;

Harlan v. Graybar Electric Co., 442 F.2d 425 (9th Cir.

1971).

While we have found no case precisely on point, the facts

herein are somewhat similar to those in Gann v. Smith,

443 F2d 352 (5th Cir. 1971). In Gann, the Fifth Circuit

dismissed an appeal, holding that the trial judge had

abused his discretion in extending the time for filing a

notice of appeal. The court observed that the State Attor-

ney had not been guilty of “neglect” of any kind, but that

he deliberately and voluntarily made a decision not to

appeal the case, adhered to it until after the initial thirty

days had expired, and thereafter sought an extension of

time to appeal. The Fifth Circuit concluded that the fact

that the respondent changed his mind was not the equiva-

lent of excusable neglect for purposes of Rule 4(a).

The facts herein are somewhat less convincing with

respect to extending the time for appeal. Unlike Gann, it is

not even clear to this court that the putative appellants

intend or desire to take an appeal from this court’s order.

On the contrary, it appears that the course of action that

they prefer is to have this court vacate its April 15 order if

it finds that there are genuine and substantial issues of

material fact and of law raised by its Rule 60(b) motion,

and, then, thereafter, proceed to dispose of the merits of

the 60(b) motion in a less hasty fashion. The purpose of

this circuitous procedure is to “obviate a protective appeal.”

The would-be appellants cite no cases approving of this

rather novel suggested procedure, and indeed, we do not

believe that the Federal Rules compel such a result, nor

will the interests of justice and judicial economy be served

thereby. Likewise, we find that the putative appellants

have not shown any facts or circumstances upon which a

finding of “excusable neglect” in failing to timely file a

notice of appeal might be predicated. At most, the pur-

ported delays attributable to Aetna or the other defen-

dants in the plenary action which prohibited prompt

discovery of the newly found evidence would only be rele-

vant to consideration of whether we should reach the

merits of their Rule 60(b) motion and do not compel a

finding of excusable neglect within the meaning of Rule

4(a). Cf. Files v. City of Rockford, 440 F.2d 811 (7th Cir.

1971). The continuing hedging of the putative appellants

as to whether or not they desire or intend to appeal

certainly does not constitute mere neglect excusing them

from failure to file a timely notice of appeal, but constitu-

tes a mere tactical dilemma. See, e.g., Gann v. Smith,

supra; Linabary v. Maritime Overseas Corp., 376 F. Supp.

688, 689 (S.D. N.Y. 1973). See also Dyotherm Corp. v.

Turbo Machine Co., 434 F.2d 65 (3rd Cir. 1970).

On the other hand, the alleged “Catch 22” dilemma in

which they contend they find themselves is not the sort of

extraordinary case where injustice would otherwise result

if an appeal were not taken. It appears to this court that

the appropriate procedural approach is to have this court

consider the merits of the unsecured creditors’ Rule 60(b)

motion. Any order refusing relief under Rule 60(b) would

itself be an appealable order, with the result that the

putative appellants’ remedies will not be forfeited thereby.

Accordingly, for the reasons hereinabove expressed, the

motion filed by several of the bankrupts unsecured credi-

tors for an extension of time in which to file a notice of

appeal is hereby DENIED. It is hereby ORDERED that

the matter of the unsecured creditors’ motion for reconsid-

eration be set down for a hearing before the undersigned

on the 19th day of July, 1977, at 10:00 A.M. in Room 522,

United States Courthouse, Atlanta, Georgia.

IT IS SO ORDERED, this 13th day of June, 1977.

/s/ RICHARD C. FREEMAN

UNITED STATES DISTRICT JUDGE

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

In the Matter of:

GEORGIA PANELING SUPPLY, INC., Bankrupt

Bankruptcy Case No. B74-1628A

[Filed December 20, 1977]

ORDER

For the reasons set forth in an Opinion of this Court to

be hereafter filed, it is hereby

ORDERED that the Motion of International Paper Com-

pany, Hampton Lumber Sales Company, Gold Rey Forest

Products, Inc., Versapanel, Inc. and White Lumber Sales,

Inc. (hereinafter collectively referred to as “Appellants”)

for relief under Rule 60(b)(1), (2) and (3) of the Federal

Rules of Civil Procedure, which Motion was remanded to

this Court for determination by order of the Honorable

Richard C. Freeman, U. S. District Judge, on August 25,

1977, be, and the same hereby is in all respects, DENIED;

and it is

FURTHER ORDERED that a hearing on the Applica-

tion of Aetna Business Credit, Inc. for an assessment of

expenses incurred by it on appeal and on the Application of

the Trustee for an assessment of expenses incurred by him

on appeal shall be heard before this Court at 2:00 o'clock

p.m., on the 19th day of January, 1978, in Room 546 of the

U. S. Courthouse, 56 Forsyth Street, Atlanta, Georgia; and

it is

FURTHER ORDERED that Appellants shall bear all

costs incurred in connection with the hearing on their

Motion.

The time for appeal from this Order shall run from the

date of entry of the Opinion to be filed in connection

herewith.

SO ORDERED in Atlanta, Georgia, this 20th day of

December, 1977.

‘'s/ WILLIAM L. NORTON, JR.

UNITED STATES BANKRUPTCY JUDGE

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

In the Matter of:

GEORGIA PANELING SUPPLY, INC., Bankrupt

In Bankruptcy No. B74-1628A

(Filed: September 23, 1977]

ORDER

At the hearing before this Bankruptcy Court on Septem-

ber 19, 1977, on the objecting creditors’ Rule 60(b) motion

remanded to this Court for hearing by Order of United

States District Court Judge Richard C. Freeman, John C.

Pennington, duly appointed Trustee for the captioned

Bankrupt, on oral motion requested this Court to consider

amendment of its Order of September 16, 1977, and the

objecting creditors placed before this Court three written

motions for consideration, being: (1) Notice of Appeal and

Request for Immediate Review; (2) Motion for a Stay

Pending Appeal; and (3) Motion to Reassign Case.

After hearing oral argument by counsel for the parties,

the Court ruled:

Trustee’s Motion to Amend Order of

September 16, 1977

In accord with its intention announced to the parties on

September 16, 1977, to clarify its Order of that same date,

IT IS ORDERED that the last three lines of the last full

paragraph preceding the date be amended to read as follows:

Motion, and as to ‘newly discovered evi-

dence’ under Rule 60(b)(2), that which necessar-

ily could not have been discovered by due

diligence in time to move for a new trial under

Rule 59(b), or a rehearing under Bankruptcy

Rule 923.”

Notice of Appeal and Request for Immediate Review

The objecting creditors’ Notice of Appeal and Request for

Immediate Review was brought to the attention of this

Court to indicate its filing and to provide the basis for the

objecting creditors’ motion, which next follows.

Motion for a Stay Pending Appeal

The parties being present with witnesses and ready to

proceed, the objecting creditors’ motion under Rule 805 of

the Rules of Bankruptcy Procedure was DENIED, it ap-

pearing that such denial would best serve to protect the *

rights of all parties in interest, the objecting creditors’ ';

having been advised by this Court that they will be af- ‘’

forded such time or periods of time as may be necessary to

permit a full hearing of evidentiary matters which are

admissible and appropriate in the consideration of a Rule

60(b) motion.

Motion to Reassign Case

For the reasons appearing in the foregoing denial of the

objecting creditors’ motion under Bankruptcy Rule 805,

and it further appearing that this Court has heard evi-

dence and arguments of counsel for a period of at least five

hours, with additional time for hearing being presently

set, this Court would DENY objecting creditors’ motion to

reassign the case. Moreover, this Court is subject to the

United States District Court’s Order of remand, dated

August 26, 1977, and is without authority under Rule 102

of the Bankruptcy Rules of Procedure to reassign the case.

SO ORDERED this 19th day of September, 1977.

/s/ WILLIAM L. NORTON, JR.

U.S. BANKRUPTCY JUDGE

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

IN RE: GEORGIA PANELING SUPPLY, INC..,

Bankrupt

Case No. B74-1628A

[Filed September 16, 1977]

ORDER

Certain creditors of the referenced Bankrupt, Interna- |

tional Paper Company, Hampton Lumber Sales Company,

Gold Rey Forest Products, Inc., Versapanel, Inc., and

White Lumber Sales, Inc., appealed from the Order of this

Bankruptcy Court entered on June 17, 1976, approving the

settlement by the Trustee of a controversy with Aetna

Business Credit, Inc. After affirmance of said Order in all

respects by the District Court sitting on appeal, the object-

ing Creditors filed a motion under Rule 60(b) of the Fed-

eral Rules of civil Procedure and the District Court by its

Order entered on July 22, 1977, [sic] remanded the object-

ing Creditors’ Rule 60(b) Motion to this Court for a hear-

ing and determination of the issues presented.

On September 8, 1977, this Court entered an Order

setting the matter for hearing at 8:00 a.m. on the 19th day

of September, 1977. On September 12, 1977, the objecting

Creditors filed an Application with this Court requesting

that the time and date set for hearing be postponed until a

date on or after October 24, 1977, for the following cited

reasons: (1) Counsel for the objecting Creditors would be

otherwise engaged in a jury trial before the Honorable

Albert J. Henderson, Jr., District Court Judge of this

District; (2) that a determination need first be made by

this Court as to the adequacy or competence of the Trustee

to conduct the defense, presumably in his own behalf, and

as to whether Aetna Business Credit, Inc. is a proper party

to this preceeding; and (3) that an order need first be

entered by this Court incorporating all of the discovery

documents in certain related plenary actions into these

proceedings in bankruptcy on the Creditors’ Rule 60(b)

Motion.

The Trustee, by his response to the Creditors’ Applica-

tion, has shown by the affidavits of counsel that certain

criminal matters and jury trial in a civil action are set to

be tried before Judge Henderson during the week of Sep-

tember 19, 1977, prior to the trial of the matter in which

counsel for the objecting Creditors is involved. It therefore

appearing that said case involving counsel for Creditors

will not be reached by Judge Henderson during the time

set by this Court for hearing of Creditors’ Rule 60(b)

Motion, Creditors’ Application for continuation and post-

ponement for the reason of the conflict anticipated by

counsel for Creditors is hereby DENIED.

This Court does not perceive a logical nexus between a

determination as to the Trustee’s adequacy or competence

to conduct his own defense, and the question of whether

Aetna Business Credit, Inc. is a proper or interested party

to be heard in these proceedings. It appears sufficient that

Aetna Business Credit, Inc. has participated in the matter

before this Court from the time of the original hearing on

the Trustee's Application to settle his controversy. Further,

as a party to the settlement which is the subject of this

proceeding, Aetna Business Credit, Inc. would appear to

have real and obvious interest in the outcome.

Accordingly, whether by right or by reason of the discre-

tion vested in this Court to hear those who would be

directly affected by its decisions, Aetna Business Credit,

Inc. will not be denied a voice in this matter if it so desires.

It therefor appearing that Creditors’ Application for post-

ponement for the reason that the Trustee has not been

shown to be inadequate or incompetent with the result

that Aetna Business Credit would be then not a party, is

without merit or logic, their request for such reason is

hereby DENIED.

Judge Freeman's Order of remand directed this Court to

the question of whether Appellants can carry their heavy

burden of demonstrating grounds for relief under Rule

60(b) (1), (2) or (3) which would warrant setting aside the

earlier judgment of this Court. The cited portion of Rule

60\b) states the following reasons for providing relief from

a final judgment: (1) mistake, inadvertence, surprise, or

excusable neglect; (2) newly discovered evidence, which by

due diligence could not have been discovered in time to

move for a new trial under Rule 59(b); (3) fraud (whether

heretofore denominated intrinsic or extrinsic), misrepre-

sentation, or other misconduct of an adverse party.

Since evidence supporting the grounds for relief stated

under (1) and (3) of Rule 60(b) would not likely appear in

the discovery documents in the related plenary actions,

this Court sees no need to consider these provisions of the

rule in the context of the Creditors’ request for postpone-

ment based on the need for an order incorporating such

discovery records into these proceedings.

The character of the evidence which must be offered in

order to support a claim for relief under (2) of Rule 60(b) as

stated in Professor Moore's Treaties,

*.. must be such as was not and could not by the

exercise of due diligence have been discovered in

time to present in the original proceeding. And

must be admissible and credible, and must be of

such a material and controlling nature as will

probably change the outcome, not merely cumu-

lative or tending to impeach or contradict a wit-

ness.” 7 Moore's Federal Practice, Sec. 60.23(4).

It seems highly improbable to this Court that all of the

discovery documents in the various related plenary actions

would be admissible under the suggested criteria, or fur-

ther the Creditors’ effort to carry their heavy burden of

demonstrating grounds for relief. It will be incumbent on

the Creditors to select and offer only evidence of such a

character as will meet the cited standard for “newly dis-

covered evidence”. This Court should not be put upon or

required to examine or sift through a large body of discov-

ery documents in order to determine that which might

support the Creditors’ contentions. This would be the case

whether such purported evidence were offered en masse, or

introduced by the Creditors in a random fashion for the

purpose of determining which of such evidence might be

admissible on the narrow issues before this Court.

Accordingly, since this Court views it to be the burden of

the movants to produce only evidence such as would be

admissible in the context of their motion, and the sum-

mary nature of the proceeding from which it stems, it

perceives no reason why an order should issue incorporat-

ing quantities of discovery documents which could only

tend to burden the Court and hamper an efficient and just

determination of the issues.

Therefore, Creditors’ Application for Postponement for

the reason that an order needs to first be entered incor-

porating all of the discovery documents in the related

plenary actions is hereby DENIED.

Counsel for Creditors suggests that the hearing on their

Rule 60(b) Motion will require two to three weeks. This

Court fails to comprehend how it will require such an

amount of time to show this Court what the Creditors have

discovered since the original hearing on May 18, 1976,

which by due diligence was not discoverable before said

date and which would require a different ruling with

respect to the propriety of the Trustee’s settlement of its

controversy with Aetna Business Credit, Inc.

Creditors’ request for reservation by this Court of a two

to three week period for the hearing of their Rule 60(b)

Motion is therefore hereby DENIED.

On Monday, September 19, 1977, the Court will confine

its examination exclusively to evidence offered by the

Creditors which is of a character appropriate to a Rule

60(b) Motion, and as to new evidence, that which necessar-

ily could not have been discoverable prior to the hearing

on May 18, 1976.

IT IS SO ORDERED, this 16th day of September, 1977.

/s/ WILLIAM L. NORTON, JR.

UNITED STATES BANKRUPTCY JUDGE

UNITED STATES DISTRICT COURT

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

In the Matter of:

GEORGIA PANELING SUPPLY, INC., Bankrupt

Case No. B74-1628A

[Filed January 5, 1978]

Opinion

This matter came on for hearing on September 19, 1977,

upon the remanded Motion of International Paper Com-

pany, Hampton Lumber Sales Company, Gold Rey Forest

Products, Inc., Versapanel, Inc. and White Lumber Sales,

Inc. (hereinafter collect. vely referred to as “Appellants”),

which was previously filed with the United States District

Court pursuant to Rule 60(b) of the Federal Rules of Civil

Procedure, and upon the Application of Aetna Business

Credit, Inc. (hereinafter “Aetna”) for an assessment of

expenses incurred by it on appeal, and upon the Applica-

tion of John C. Pennington, Trustee herein of Georgia

Paneling Supply, Inc., for an assessment of expenses in-

curred on appeal. The Court heard argument of counsel for

Appellants in support of their Motion and argument of

counsel for the Trustee and Aetna in opposition thereto on

September 19 and 20, 1977, at the conclusion of which the

Court directed Appellants to submit a brief setting forth

the facts and legal principles urged in support of their

Motion. The Court has reviewed the brief submitted by

Appellants and the responsive brief submitted by the

Trustee (which was adopted by Aetna as its response to

Appellants’ brief) and, based upon these briefs, the oral

argument of counsel, and the record of this bankruptcy

case, the Court has determined that Appellants’ Motion

must be DENIED for the reasons that follow.

Procedural History

The procedural history of this bankruptcy case and the

circumstances out of which Appellants’ instant Motion

arise is of more than passing interest and should be re-

viewed in order to place in proper perspective the conten-

tions of the parties.

Georgia Paneling Supply, Inc., a Georgia corporation

formed on October 19, 1972 (hereinafter “the Bankrupt”)

was adjudicated a bankrupt upon an involuntary petition

filed by three of the Appellants on June 24, 1974, and

consented to by the Bankrupt on July 29, 1974. On Sep-

tember 10, 1974, John C. Pennington was appointed and

duly qualified as Trustee of the bankrupt estate, which

was on the date of his appointment and is now without any

assets.

On July 9, 1975, the Trustee filed a civil action against

Aetna Business Credit, Inc. (hereinafter “Aetna”) and The

C & S Bank of North Fulton (hereinafter “C & S”) wherein

he sought to recover the amount of certain transfers to

them suffered by the Bankrupt through foreclosure of their

security interests upon the property of the Bankrupt.

On January 20, 1976, after having conducted discovery

and investigation of the facts, the Trustee made applica-

tion to this Court to settle his lawsuit with respect to

Aetna pursuant to Section 27 of the Bankruptcy Act. At an

in-chambers hearing held that same day, Appellants ap-

peared in opposition to the settlement proposed and there-

after moved to intervene in the Trustee’s lawsuit, which

was then pending before the United States District Court.

On April 16, 1976, the Trustee renewed his application

to settle with Aetna, and on May 5, 1976, Appellants filed

an application to remove the Trustee for alleged dereliction

of his fiduciary duties in attempting to effectuate a settle-

ment upon terms opposed by them. In addition, Appellants

filed an application requesting the Court to appoint a

named successor trustee with Appellants’ counsel to serve

as such successor trustee's attorney.

A hearing on the Trustee's application, as well as on the

two applications filed by Appellants, was held on May 18,

1976. After lengthly argument of counsel for the Trustee,

Aetna and Appellants, the Court entered an order on June

17, 1976, which granted the Trustee's application and de-

nied those filed by Appellants. From that order Appellants

appealed on June 29, 1976, to the District Court, which

affirmed this Court's rulings by order of April 15, 1977. On

May 16, 1977, Appellants filed a motion requesting the

District Court to extend the time within which they might

file a notice of appeal and on May 31, 1977, Appellants

also filed the instant Motion under Rule 60(b) of the

Federal Rules of Civil Procedure requesting the District

Court to vacate its affirmance of this Court’s June 17th

order. The District Court denied Appellant's motion to

extend time on June 15, 1977, and on July 22, 1977, the

District Court denied Appellants’ instant Motion as un-

timely filed.

Following the denial of their Motion under Rule 60(b),

Appellants filed a second Rule 60(b) motion wherein they

requested the District Court to vacate its denial of the

instant Motion because the District Court had entered its

order under a misapprehension of the facts relating to

Appellants’ timeliness. On August 26, 1977, the District

Court entered an order upon Appellants’ second Rule 60(b)

motion vacating its denial of the instant Motion and re-

manding same for consideration by this Court under sub-

paragraphs (1), (2) and (3) of Rule 60(b).

On September 8, 1977, this Court entered an order

directing Appellants, Aetna and the Trustee to appear

before the Court on September 19, 1977, for a hearing

upon Appellants’ remanded Motion. Appellants on Septem-

ber 13, 1977, filed with the Court an application request-

ing a continuance of the scheduled hearing; urging the

Court to prohibit counsel for Aetna from participating at

the hearing; requesting the Court to have all discovery

taken in the pending action before the District Court

incorporated by reference for use at the hearing; and

asking the Court to set aside two weeks of its calendar to

devote to the hearing on their Motion. On September 16,

1977, this Court entered an order denying in all respects

this application of Appellants.

At the outset of the scheduled hearing on their Motion,

Appellants informed the Court that they had or were

planning to file a notice of appeal from the Court's denial

on September 16, 1977, of their pre-hearing application;

moved the Court for a stay of the hearing pending a

disposition of the appeal; and requested the Court to reas-

sign their Motion to another Bankruptcy Judge whose

calendar would permit the devotion of two weeks to the

hearing. The Court likewise denied these requests of Ap-

pellants.

Thereafter, the hearing proceeded and the Court permit-

ted Appellants to present evidence in support of their

Motion. In view of Appellants’ contention that the hearing

would require two full weeks, which the Court found

somewhat incredible, and in an effort to focus the hearing

upon the grounds for relief asserted in the Motion rather

than allowing the hearing to evolve into a full-blown trial

on the merits, the Court requested Appellants’ counsel to

summarize their asserted grounds for relief and the nature

of the evidence that Appellants intended to repesent in

support thereof prior to their examination at length of

witnesses. The Court’s primary purpose in making this

request was to determine whether, taking as true the

evidence that Appellants intended to present, Appellants

would as a matter of law be entitled to relief under any one

or more of subparagraphs (1), (2) or (3) of Rule 60(b) of the

Federal Rules. Appellants’ counsel strenuously objected to

this request of the Court and maintained that they should

be permitted to present all of their evidence without first

having to explain how such evidence might be relevant to

their Motion. Before complying with the Court’s request,

Appellants’ counsel moved the Court to exclude the

Trustee and his attorney from the courtroom during his

explanation of Appellants’ contentions and the nature of

their evidence. The Trustee voluntarily agreed to absent

himself from the courtroom and the Court ruled that the

Trustee’s counsel was entitled to remain. After approxi-

mately four hours, during which Appellants’ counsel sum-

marized in part the nature of Appellants’ contentions and

argued the relevance of the evidence which they proposed

to offer in support of their Motion, the hearing was ad-

journed to the following morning, at which time it re-

sumed and continued for a period of several more hours.

As a result of the Court's failure to discern the factual

contentions urged by Appellants in support of their Motion

and the relevance of much of the evidence that they

proposed to offer, stemming largely from the refusal of

Appellants’ counsel to explain same, the Court directed

counsel for Appellants to submit a legal brief detailing

what they expected to elicit from their witnesses and what

they expected their documentary evidence to show (atta-

ching such documents to their brief) in order that the

Court could determine whether Appellants would be en-

titled to any relief under Rule 60(b) even assuming the

truth of their evidence. The Court made clear to all parties

that, in the event there were any disputes as to any

material fact set forth in Appellants’ brief or in any brief

filed in response thereto, a hearing would be held solely for

the purposes of receiving evidence as to those disputed

facts.

Summary of Undisputed Facts

The following is a summary of those facts, which for the

purpose of this Motion have not been disputed by the

parties either in their briefs or at the hearing:

(1) Prior to its adjudication, the Bankrupt was engaged

in the wholesale lumber business at Mimms Drive, Gwin-

nett County, Georgia, and was owned and managed by T.

R. Locke, J. Wayne French and other persons whose identi-

ties are unimportant for the purpose of the instant Motion.

(2) In addition to their ownership interest in and man-

agement of the Bankrupt, Messrs. Locke and French had

an ownership interest in and managed the operations of

several other companies (hereinafter collectively referred

to as “the Georgia Paneling group”) known as Georgia

Paneling Company, Inc. (hereinafter referred to as “Panel-

ing”), Georgia Paneling Company of Doraville, Inc. and

Georgia Paneling Company of Forest Park, Inc. (hereinaf-

ter referred to as “Forest Park”). The Georgia Paneling

group operated essentially as retail outlet stores on behalf

of the Bankrupt, which consigned to them for retail sale

inventory consisting of lumber and related products pur-

chased by the Bankrupt from its supplier. All accounts

receivable generated by the Georgia Paneling group were

owned by and turned over to the Bankrupt, which would

remit a certain percentage of the proceeds back to the

Georgia Paneling group in order to maintain their retail

sales operations.

(3) Appellants were suppliers of the Bankrupt and are

now unsecured creditors of the Bankrupt.

(4) On June 22, 1973, Aetna completed an internally

preparec| document styled “Loan Application Approval” in

connection with an accounts receivable financing arrange-

ment that it was contemplating with Paneling, which then

was operating out of a warehouse at 122 Oak Street in

Roswell, Georgia.

(5) Both the Bankrupt and Paneling executed the fol-

lowing loan documents, each of which are dated June 25,

1973, and delivered same to Aetna: General Loan and

Security Agreement; Security Agreement-Accounts and

Accounts Receivable; Promissory Note to Aetna for

$250,000.00; Continuing Guaranty by the Bankrupt of all

indebtedness of Paneling to Aetna; Continuing Guaranty

by Paneling of all indebtedness of the Bankrupt to Aetna;

and UCC Form-1 Financing Statements.

(6) The Trustee has demonstrated, and Appellants have

not disputed, that on October 16, 1973, Aetna completed

an internally prepared document styled “Loan Application

Approval” in connection with an increase in the loan limit

of its accounts receivable financing arrangement with the

Bankrupt.

(7) The Bankrupt executed the following loan docu-

ments, each of which are dated October 22, 1973, and

delivered same to Aetna: Amendment to Security Agree-

ment and Promissory Note to Aetna for $450,000.00.

(8) The Bankrupt executed the following loan docu-

ments, each of which are dated January 7, 1974, and

delivered same to Aetna: General Loan and Security

Agreement; Security Agreement-Accounts and Accounts

Receivable; Promissory Note to Aetna for $450,000.00; and

UCC Form-1 Financing Statement.

(9) Pursuant to the various loan documents referred to

above, both the Bankrupt and Paneling granted to Aetna a

security interest in, among other things, all of their then

existing and after-acquired inventory, accounts receivable,

contract rights, general intangibles and the proceeds of the

foregoing.

(10) In December of 1973, Appellants contend, and the

Trustee apparently does not dispute, that a fire destroyed

all or substantially all of the contents of the warehouse of

Forest Park. The contents of the warehouse apparently

were insured against fire loss and the Bankrupt was or

claimed to be the loss payee on the policy of insurance.

Appellants contend that the Bankrupt received the insur-

ance proceeds from the fire loss and that these proceeds

were ultimately paid to Aetna.

(11) The Trustee contends, and Appellants have not

disputed, that pursuant to the loan documents previously

described, Aetna made wire transfers of funds during 1974

to the Bankrupt’s checking account at C & S. There is no

evidence that Aetna ever wired any sums of money to

Paneling.

(12) Beginning sometime in June of 1974, Aetna took

possession of the inventory of the Bankrupt without a

breach of the peace and foreclosed its security interest

thereon by reason of certain defaults alleged by Aetna to

have occurred.

Issue Presented

The ultimate issue in this case is whether Appellants

are entitled to any relief under Rule 60b of the Federal

Rules of Civil Procedure.

Appellants in their Motion contend that “upon discovery

of Aetna Business Credit, Inc., in a related plenary action”

they have evidence showing that “Aetna received a prefer-

ence voidable under Section 60b of the Bankruptcy Act

from” the Bankrupt and that Aetna “broke its obligation of

good faith” and “acted in a commercially unreasonable

manner as to” the Bankrupt. Thus, they contend that they

are entitled as unsecured creditors of the Bankrupt to

relief from the Court’s order of June 17, 1976, which

approved over their opposition the settlement between the

Trustee and Aetna, pursuant to the following subpara-

graphs of Rule 60(b) of the Federal Rules of Civil

Procedure:

(1) Subparagraph (1) of Rule 60(b), which authorizes the

Court to grant relief from an order for “mistake, inadver-

tence, surprise, or excusable neglect”;

(2) Subparagraph (2) of Rule 60(b), which authorizes the

Court to give relief from an order on the grounds of “newly

discovered evidence”; and

(3) Subparagraph (3) of Rule 60(b), which empowers the

Court to afford relief from an order obtained by “fraud

misrepresentation or other conductisic] of an adverse

party.” |

Before examining the facts that Appellants urge in sup-

port of their Motion, it is appropriate first to review the

principles of law which are applicable to a motion under

Rule 60(b).

Applicable Law

The Trustee's Brief fairly summarizes the law applicable

to a Rule 60(b) motion. As the Trustee correctly observes,

the August 26th order of the District Court remanded to

this Court for determination whether Appellants “can

carry their heavy burden of demonstrating grounds for

relief under Rule 60(b) (1), (2) or (3) which would warrant

setting aside” this Court’s June 17th order approving the

Trustee’s settlement. An analysis of the provisions of these

subparagraphs of Rule 60(b) is therefore appropriate at

this juncture.

Rule 60(b) provides in pertinent part as follows:

“On motion and upon such terms as are just, the

court may relieve a party or his legal representa-

tive from a final judgment, order, or proceeding

for the following reasons: (1) mistake, inadver-

tence, surprise, or excusable neglect; (2) newly

discovered evidence which by due diligence could

not have been discovered in time to move for a

new trial under Rule 59(b); (3) fraud (whether

heretofore denominated intrinsic or extrinsic),

misrepresentation, or other conduct(sic] of an ad-

verse party... The motion shall be made within

a resonable period of time, and for reasons (1), (2)

and (3) not more than one year after the judg-

ment, order or proceeding was entered or taken.”

The courts are in agreement that a motion for relief

under Rule 60(b) is addressed to the sound discretion of the

court. See Hand v. U. S., 441 F.2d 529 (5th Cir. 1971). In

exercising such discretion, the Court must balance the

policy of the law to prevent injustice against the equally

strong policy in favor of achieving finality in litigation. See

In Re Casco Chemical Co. 335 F2d 645, 651 (5th Cir. 1964).

Some factors which must be weighed in the balance are

whether the motion has been made within a “reason-

able time”, even though the stated time limit has not

expired; whether the movant can show good reason for his

failure to take appropriate action sooner; whether the

movant can show a good claim or defense; and whether

undue prejudice or hardship would result to other parties

if the motion were granted. See generally 11 Wright and

Miller, Federal Practice and Procedure, Section 2857, at

160-61 (1973).

Subparagraph (1) of Rule 60(b) authorizes the Court to

give relief from an order for “mistake, inadvertence, sur-

prise, or excusable neglect.” The authority granted by this

subparagraph has been exercised in a variety of circum-

stances, such as when a party not represented by counsel

makes a procedural error, see Woods v. Severson, 9 F-R.D.

84 (D.Neb. 1949); when a party failed to appear at trial for

good reason, see Denman v. Shubrow, 413 F.2d 258 (1st Cir.

1969); when an answer was not filed until one day after

the expiration of an extended time for service and filing,

see Davis v. Parkhill-Goodloe Co., 302 F.2d 489 (5th Cir.

1962); and when a consent order is entered into based upon

erroneous factual respresentations made by the other

party, see U.S. v. Gould, 301 F2d 343 (5th Cir. 1962).

However, relief generally has not been granted solely on

the grounds of ignorance of the law, see U.S. v. Erdoss, 440

F.2d 1221 (2nd Cir.1971), cert. denied, 404 U.S. 849; care-

lessness of a litigant or his attorney, see Cline vs.

Hoogland, 518 F.2d 776 (8th Cir. 1975); failure to present

all of the facts known to the movant that might have been

useful to the court in rendering a decision, see Smith v.

Stone, 308 F.2d 15 (9th Cir. 1962); or ineffective tactical

decisions of counsel, see U.S. v. 1,550.44 Acres of Land, 369

F. Supp. 1078 (D.N.D. 1974).

Subparagraph (2) of Rule 60(b) empowers the Court to

give relief from an order on the grounds of newly discov-

ered evidence. The evidence must have been in existence

at the time of the trial or hearing, see Ryan v. U.S. Lines

Co., 303 F.2d 430 (2d Cir. 1962); it must be “newly discov-

ered” in the sense that it was not in the possession of the

movant before the order was entered, see Kolstad v. U.S.,

262 F.2d 839 (9th Cir. 1959); it must have been evidence

that “by due diligence” could not have been discovered

prior to the hearing or in time to move for a new trial or

for reconsideration, see Flett v. WA. Alexander & Co., 302

F.2d 321 (7th Cir. 1962), cert denied 371 U.S. 841; it must

be evidence that is not merely cumulative and must be of

such materiality and weight as to probably produce a

difference[sic] outcome in the proceedings, see Trans Mis-

sissippt Corp. v. U.S., 494 F.2d 770 (5th Cir. 1974).

Subparagraph (3) of Rule 60(b) authorizes the Court to

grant relief from an order obtained by fraud, misrepresen-

tation or other misconduct of an adverse party. The burden

is upon the movant to establish the fraud by clear and

convincing evidence. See Saenz v. Kenedy, 178 F.2d 417

(5th Cir. 1950); Wilkin v. Sunbeam Corp., 466 F.2d 714

(10th Cir. 1972). As a general rule, a statement of opinion

as to the law, whether or not accurate, would not consti-

tute fraud or other misconduct within the meaning of

subparagraph (3). See Walker v. Bank of America National

Trust & Savings Association, 268 F.2d 16 (9th Cir. 1959).

A motion made under any or all of the above-discussed

subparagraphs of Rule 60(b) must be made within a rea-

sonable time after entry of the order from which relief is

sought and in no event later than one year after the order

was entered. If a motion for relief under any of these

subparagraphs is not made within a reasonable time, it

will be denied, although made within the one-year max-

imum period. See Standard Newspapers, Inc. v. King, 375

F.2d 115 (7th Cir. 1967); 7 Moore, Federal Practice, Sec.

60.28(2] (2d ed. 175). What constitutes reasonable time

must of necessity depend upon the facts in each case.

However, the Court should consider whether the party

opposing the motion has been prejudiced by the delay in

seeking relief and whether the movant has some good

reason for his failure to take appropriate action sooner. See

generally 11 Wright and Miller, supra, Sec. 2866 at pp.

228-31.

Having thus reviewed the general principles governing

relief under Rule 60(b) (1), (2) and (3), it is now incumbent

upon the Court to analyze each of Appellants’ asserted

grounds for relief in the context of these principles.

Summary of Appellants’ Contentions

Appellants have filed four amendments to their original

Rule 60(b) Motion, each of which amendments attempts to

supplement and enlarge the grounds alleged for relief.

In their original Motion, Appellants argue that their

motion should be granted on the basis of newly discovered

evidence indicating that (1) Aetna never made a “loan” to

the Bankrupt (and presumably, therefore, foreclosed upon

the' wrong company;* (2) that the person signing the loan

documents on behalf of Aetna did not have the requisite

corporate authority to sign; (3) that Aetna allegedly col-

lected excessive amounts of interest from Paneling, the

company to which Aetna actually made the loan according

to Appellants; (4) that J. Wayne French did not have

proper authority to surrender the premises to Aetna on

June 7, 1974, the date on which Aetna took possession of

the inventory of the Bankrupt prior to actual foreclosure;

(5) the Bankrupt as guarantor of the indebtedness of

Paneling was discharged by reason of a novation and an

accord and satisfaction; (6) that Aetna wrongfully seized

the insurance proceeds which resulted from a fire of the

Forest Park warehouse and which were payable to the

Bankrupt; (7) that Aetna’s loan documents were uncom

scionable on their face; (8) that Aetna took possession of

the Bankrupt’s inventory on June 7, 1974, without Mr.

French’s consent and by duress or coercion; \9) that the

Bankrupt’s guaranty of the Paneling indebtedness was an

unsecured guaranty and therefore Aetna could not enforce

that guaranty in rem by foreclosing upon the assets of the

Bankrupt; (10) that the loan documents executed in

January of 1974 were without consideration and therefore

unenforceable; and (11) that Aetna foreclosed upon the

property of the Bankrupt in a commercially unreasonable

manner.

*Appellants’ use of the term “loan” is slightly misleading. lt appears

that Aetna never made one lump sum advance to either the Bankrupt

or Paneling, but rather advanced against accounts receivable pledged

to it from time to time under an accounts receivable financing arrange-

ment.

In their first amendment to their original 60(b) Motion,

Appellants attach an affidavit of a person who presumably

analyzed all invoices in the possession of the Trustee and

determined that eighty percent of those invoices bear the

letterhead of Paneling while only twenty percent bear the

name of the Bankrupt. This affidavit is offered to supple-

ment Appellants’ contention that the loan from Aetna was

made to Paneling and not to the Bankrupt.

Appellants’ second amendment to their Motion consists

of an Affidavit from their counsel and is offered to demon-

strate excusable neglect, newly discovered evidence, mis-

representation or misconduct of an adverse party and “any

other reason justifying relief” from the operation of this

Court's approval of the Trustee’s settlement.

Appellants’ third amendment to their Motion consists

solely of a photocopy of their original Motion with hand-

written notations interspersed throughout which give cita-

tions to various depositions.

Appellants’ fourth amendment to their Motion contains

two affidavits, the first from an employee of one of the

Appellants and the second from Appellants’ counsel, which

are offered to demonstrate their “mistake, surprise and

inadvertence”.

Appellants also filed in support of their original Motion

a document styled “Motion for Leave to Submit Affidavits

of Persons Present Under Subpoena for Hearing before the

Honorable Richard C. Freeman on July 19, 1977”, which

by order dated July 22, 1977, the District Court denied.

Although these affidavits are not properly before this

Court on remand, the Court will nevertheless consider

them.

Finally, Appellants have filed with this Court a brief

which advances three grounds in support of their Motion:

First, on the ground of newly discovered evidence showing

that Aetna made a loan to Paneling and not to the Bank-

rupt; secondly, on the grounds that Appellants were mis-

taken as to the true identity of the party to whom the loan

from Aetna was made; and thirdly, on the ground that

Aetna committed a fraud in representing to this Court at

the May 18th settlement hearing that the loan was made

to the Bankrupt when, in fact, it was made to Paneling as

they contend. It appears from Appellants’ brief that Appel-

lants have abandoned the majority of their numerous

theories and place almost total reliance upon their conten-

tion that Aetna made only one loan and that that loan was

made to Paneling rather than to Aetna(sic].

Conclusions of Law

A. Rule 60(b)(1) — Mistake, Inadvertence, Surprise or

Excusable Neglect.

In support of their claim for relief under subparagraph

(1) of Rule 60(b), Appellants first offer the affidavit of their

counsel, which in essence consists of a 32-paragraph over-

view of the history of this litigation and his participation

therein. The affidavit is attached to Appellants’ Second

Amendment to their Motion and is offered in part to

demonstrate “excusable neglect”. The Court understands

the term “excusable neglect” as used in Rule 60(b) (1) to

mean neglect prior to the entry of the order from which

relief is sought. The Court is unable to find in this affi-

davit of Appellants’ counsel, which is largely self-serving,

any reference to neglect prior to the June 17th order, and

the Court is unable to infer any neglect from the narration

of facts contained in the affidavit. Accordingly, the Court

concludes that this affidavit does not satisfy the require-

ments for relief under Rule 60(b)(1).

Appellants also offer in support of their claim for relief

under Rule 60(b)(1) the two affidavits attached to their

Fourth Amendment to the instant Motion. The first of

these affidavits is that of Billie Fred Sponsler, an agent of

one of the Appellants, and the second is an affidavit of

Appellants’ counsel.*.Mr. Sponsler’s affidavit consists of a

fifteen paragraph narration of his mistake in believing

that Aetna had made a loan to the Bankrupt; his surprise

in learning the alleged facts which Appellants now claim

constitutes newly discovered evidence; and his inadver-

tence in failing to instruct his attorney to examine certain

of the loan documents between Aetna and the Bankrupt.

The Court finds Mr. Sponsler’s affidavit to be largely

*None of the Appellants besides International Paper Company (of

which Mr. Sponsler is an agent) submitted any affidavits to demon-

strate their surprise, inadvertence or excusable neglect.

conclusory and essentially self-serving. The mistake to

which Mr. Sponsler alludes is not the type of mistake

contemplated by Rule 60(b)(1). Moreover, Mr. Sponsler has

given no reason in his affidavit to justify his failure to

avoid such a mistake. If in fact the loan was made to

Paneling rather than the Bankrupt and Appellants were

unaware of this fact, then a claim for relief based upon

newly discovered evidence might be possibly stated, but

not a claim for relief under Rule 60(b)(1). The same holds

true for Mr. Sponsler’s alleged surprise. If the facts which

he was surprised to learn after the hearing constitute

newly discovered evidence, then subparagraph (2) rather

than subparagraph (1) of Rule 60(b) would be the appropri-

ate grounds for granting the relief. Finally, with regard to

Mr. Sponsler’s alleged inadvertence, the Court finds that

the inadvertence of a client in not instructing his attorney

to perform the very legal services for which the attorney

was retained does not amount to “inadvertence” under

Rule 60(b)(1). The Court does not understand Mr.

Sponsler’s affidavit to mean that his counsel was negligent

and that Appellants therefore should be relieved from the

effect of such negligence. Mr. Sponsler simply states that

he was inadvertent in not telling his attorney what to do.

This is not enough to justify relief under Rule 60(b)(1).

The second affidavit attached to this Fourth Admend-

ment, which is the affidavit of Appellants’ counsel, recites

events that occurred after the June 17th order and there-

fore completely fails to demonstrate any mistake, surprise,

inadvertence or excusable neglect which would justify re-

lief under Rule 60(b)(1).

Finally, Appellants contend in the brief filed herein that

the Court made a mistake by basing its June 17th order

upon the erroneous assumption that Aetna made a loan to

the Bankrupt. Appellants argue at one and the same time

that no loan was made to the Bankrupt and that the Court

erred “in assuming that there was no doubt as to the

identity of the borrower.” See Appellants’ Brief at pp. 12

and 14. As to Appellants’ latter argument, it is inconceiv-

able how this Court could have erred in thinking that

there was no doubt in view of the fact that the Bankrupt,

its attorney, its officers, the Trustee and everyone con-

cerned advised the Court that the Bankrupt was the prin-

cipal obligor to Aetna. As to the former argument, the

Court concludes for the reasons stated hereinafter that

Appellants have offered no evidence that demonstrates a

loan made by Aetna to any person or entity other than the

Bankrupt.

The Court concludes, therefore, that Appellants have not

offered any facts (or even assertions of fact) that would

justify the granting of their Motion under subparagraph

(1) of Rule 60(b).

B. Rule 60(b)(3) — Fraud, Mispresentation or other Mis-

conduct of an Adverse Party.

In support of their claim for relief under Rule 60(b)(3),

Appellants maintain that Aetna through its attorney mis-

represented to the Court at the May 18th heering that

Aetna made a loan to the Bankrupt. Appellants argue that

this representation was false and imply that it was made

with knowledge of the falsity of the statement. It is an

extremely serious matter to charge another party or its

counsel of having committed a fraud upon the Court, and,

absent a strong showing to the contrary, the Court must

presume that the parties and their counsel have dealt with

each other and with the Court honestly and in good faith.

The burden of proving fraud is upon Appellants and such

fraud must be shown by clear and convincing evidence.

Appellants have utterly failed to carry this burden. All

they have shown is that Aetna’s counsel made the repre-

sentation in question at the May 18th hearing. Even

assuming arguendo that the representation was inaccu-

rate, Appellants have offered nothing to indicate that

Aetna’s counsel knew or even suspected that the represen-

tation was untrue. Furthermore, it should be emphasized

that from time to time during the course of this bank-

ruptcy case the Bankrupt, its officers and attorney, and the

Trustee have made the same representation as that made

by Aetna’s counsel respecting the loan from Aetna. See

Appellant’s brief at page 11. Appellants stand alone in

their contention that no such loan was made by Aetna to

the Bankrupt and the evidence which they offer in support

of this contention is far from convincing.

Appellants also charge that Aetna was guilty of miscon-

duct in connection with discovery taken in the Trustee's

lawsuit after the June 17th order of this Court. Even

assuming that such misconduct occurred (which the Court

has no reason to believe), Appellants have not demonstra-

ted why this would justify granting the relief requested in

their Motion.

For the foregoing reasons, the Court concludes that

Appellants have failed to suggest any basis for relief under

Rule 60(b)(3).

C. Rule 60(b)(2) — Newly Discovered Evidence.

Before proceeding with an examination of Appellants’

claim for relief under subparagraph (2) of Rule 60(b), the

Court will first address a number of contentions made by

Appellants in their original Motion, which they presum-

ably offer in support of their claim for relief under sub-

paragraph (2), but which this Court finds to be altogether

without merit.

First, Appellants refer throughout their Motion and

brief to Aetna’s alleged bad faith in its dealings with the

Georgia Paneling group. The Court has been unable to

discern any specific instances of alleged bad faith as Ap-

pellants’ assertions in this regard have been merely con-

clusory. In any event, the Court notes that the provisions

of Section 109A-1—203 of the Georgia Code, which states

that an obligation of “good faith” inheres in the perfor-

mance or enforcement of every contract and to which

Appellants presumably refer, is directive rather than re-

medial. The Court has béen unable to find any jurisdiction

that allows recovery of damages under this general provi-

sion of the Georgia Uniform Commercial Code. Accord

Chander v. Hunter, 304 So.2d 818 (Ala. 1976).

Secondly, Appellants contend that Aetna overcollected

interest from Paneling. Appellants presumably have aban-

doned this claim since they have made no offer of proof of

this fact other than their counsel's affidavit that an ac-

countant was retained to verify this fact. The Court assu-

mes that Appellants were contending that this alleged

overcharge operated to discharge the Bankrupt from its

guaranty of Paneling’s debt to Aetna. Appellants have

offered no proof of an overcharge and indeed have failed to

point to one fact supporting their assertion that Aetna

collected any interest from Paneling whatsoever.

Thirdly, Appellants argue that the Bankrupt was dis-

charged from its guaranty as a result of an agreement

between Paneling and Aetna to extend the time of pay-

ment of the Paneling debt, which Appellants argue

amounted to a novation and an accord and satisfaction,

and by reason of the alleged bad faith of Aetna. No effort

has been made by Appellants to substantiate such claims

and there is nothing in the record, other than Appellants’

conclusory statements, from which to infer that these

claims have any factual basis. In any event, Appellants’

success on these theories likewise hinges upon a finding

that the Bankrupt was liable to Aetna only as a guarantor

and not as a principal obligor. The Court finds these

unsupported assertions of Appellants totally unsatisfac-

tory for purposes of relief under Rule 60(b)(2). Moreover,

the Court takes this opportunity to observe that, while a

novation discharges a surety when made without the

surety’s consent, as argued by Appellants, the Bankrupt in

the instant case was a guarantor and not a surety. Even

assuming that the Bankrupt was a surety, the Bankrupt

@iented in the Continuing Guaranty signed by it to any

extension of time granted by Aetna for the payment by

Paneling of any indebtedness owed to Aetna and to any

compromise or settlement of any such indebtedness to

Aetna. Furthermore, even assuming that Paneling rather

than the Bankrupt was the principal obligor to Aetna, and

further assuming that Paneling and Aetna entered into an

accord as argued by Appellants, there is no evidence that

the accord was likewise meant to constitute a satisfaction

until the indebtedness was paid in full. See J. A. Construc-

tion Co. v. Greenbriar Shopping Center, 332 F.Supp. 1336

(N.D. Ga.), affd 461 F.2d 1269 (5th Cir. 1971) (a mere

accord is dependent upon complete performance before it

operates in satisfaction of original agreement).

Fourthly, Appellants maintain that the various loan

documents executed by Paneling and the Bankrupt are

unenforceable because they are unconscionable on their

face and were executed on behalf of Aetna by an offical

without the requisite corporate authority to bind Aetna to

the agreements. With respect to Appellants’ arguments

about the alleged unconscionable nature of the loan docu-

ments, which they argue should be nullified under section

109A-2—302 of the Georgia Code dealing with uncon-

scionability, Appellants have simply noted that the docu-

ments authorized Actna to make advances in its discretion

and required the Bankrupt to pledge its accounts receiv-

able to Aetna for so long as the agreements remained in

force and the Bankrupt was indebted to Aetna. Initially,

the Court would point out that section 109A-2-302 does not

by its terms apply to transactions not involving a sale,

such as in the instant case. See Interstate Security Police,

Inc. v. Southern Emory Bank, 237 Ga. 37 (1976). In any

event, the Court finds nothing unconscionable about such

an arrangement, which is the essence of accounts receiv-

able financing. The Court must assume that the Bankrupt

and Paneling entered into such agreements voluntarily,

there being no argument or evidence to the contrary.

Further, the Court notes that the agreements provide for

termination at will by either party. Even assuming that

the loan documents were found to be unconscionable in

whole or in part, Appellants have failed to suggest how the

Bankrupt was injured thereby and have omitted any cita-

tions of authority for the proposition that Aetna would

thereby be required to forfeit either the debt owed to it or

its perfected security interest in the inventory of the Bank-

rupt. From a review of such loan documents, the Court is

of the opinion that the outcome of the settlement hearing

on May 18th would not have been altered had Appellants,

who at that time were aware of the contents of such loan

documents and had examined same, argued that the joan

documents were unconscionable. With respect to Appel-

lants’ assertion that the loan documents are unenforceable

because not signed by an officer of Aetna with the neces-

sary corporate authority to bind Aetna to the agreements,

the Court finds such an assertion to be wholly without

merit and bordering on being frivolous. Appellants do not

contend that the person signing on Aetna’s behalf did not *

have the necessary authority, but rather state that they

are unaware of any fact suggesting that he did have such

authority. Without speculating whether such authority ex-

isted, the Court is of the opinion that lack of corporate

authority on the part of an Aetna employee could not be

raised in an action by the Trustee against Aetna to vitiate

the very agreements which Aetna from the inception of

this litigation has relied upon as its defense. Even assum-

ing lack of proper corporate authorization, it is apparent

that Aetna has ratified the act of its agent who executed

the documents and has never once maintained that it

should be relieved from the effect of the agreements. See

Ga. Code Ann. Sec. 4-303; Advance Mortgage Corp. v.

Guaranty Title Ins. Co., 416 F.2d 451 (5th Cir. 1969);

Greene v. Golucke, 202 Ga. 494 (1947).

Fifthly, Appellants have argued in their Motion that J.

Wayne French, an officer of the Bankrupt, did not have the

necessary corporate approval to surrender possession of

the Bankrupt’s inventory to Aetna in June of 1974 and

that Aetna took possession of the inventory without Mr.

French’s consent and by duress or coercion. Although the

Court finds these two assertions to be patently inconsis-

tent — that Mr. French, on the one hand, consented with-

out proper authority and that, on the other hand, he did

not consent at all — the Court feels that such assertions

are without merit in any event. Under Georgia law a

secured party has the right to take possession of his

collateral upon default without judicial process if this can

be done without a breach of the peace. Ga. Code Ann. Sec.

109A-9-503. Georgia law, therefore, does not require the

debtor’s consent to such action. See also Thompson v. Ford

Motor Credit Co., 550 F.2d 256 (5th Cir. 1977). Accordingly,

it is irrelevant whether Mr. French was “authorized” to

surrender the inventory to Aetna. Indeed, contrary to

Appellants’ assertions, it appears that the loan documents

expressly authorized Aetna to take possession of its collat-

eral upon default and that these loan documents were

approved by a resolution of the Board of Directors of the

Bankrupt. See Exhibit “A” to Trustee’s Brief. With regard

to Appellants’ alternative theory that Aetna took posses-

sion of the invento: y without Mr. French’s consent and by

duress or coersion, the Court first notes that, for the

reaons previously discussed, Mr. French’s consent was not

necessary. Appellants have offered no evidence that Aetna

took possession of its collateral by any duress or coercion.

On the contrary, one of Appellants’ witnesses testified at

the hearing on their Motion that a single Aetna represen-

tative appeared at the premises of the Bankrupt on June 7,

1974, to effect the takeover and that a number of the

Bankrupt’s employees were present. It can hardly be

presumed that an agent of Aetna single-handedly took

control of the Bankrupt away from Mr. French and several

of the Bankrupt’s employees by force or against their will.

Finally, even assuming that Aetna used coercion to take

possession of its collateral, Appellants have not shown how

this fact alone injured the Bankrupt, nor how it should

alter the outcome of the May 18th settlement hearing.

Sixthly, Appellants argue that the Bankrupt’s guaranty

of all indebtedness of Paneling to Aetna was not secured

because on the second page of the guaranty the words

“This guaranty is secured by” precede a blank space that

has not been completed by the parties. Therefore, argue

Appellants, Aetna could not foreclose upon the property of

the Bankrupt by reason of Paneling’s default under the

loan documents. This argument also is based upon the

assumption that the Bankrupt was not indebted to Aetna

independently of its guaranty and is totally without merit

if, as the Trustee contends, Aetna made advances of money

to the Bankrupt pursuant to the accounts receivable

financing arrangement. Without addressing the question

whether Appellants would be entitled to any relief even

assuming that the Bankrupt was not the recipient of

advances from Aetna, the Court feels compelled first to

examine the dispositive issue, to-wit: whether Paneling,

rather the Bankrupt, was the sole recipient of disburse-

ments from Aetna, which examination will be taken he-

reinbelow.

Seventhly, Appellants allege that the loan documents

executed in January, 1974, which create security interests

in favor of Aetna in the property of the Bankrupt, are

unenforceable because they were without consideration.

Apparently, Appellants’ argument is that, if the loan docu-

ments do not constitute a binding agreement because they

are without consideration, then Aetna’s security interest is

unenforceable. Under Georgia law, however, all that is

necessary for the creation of an enforceable security inter-

est is an agreement that it attach to collateral, the giving

of value and the acquistion by the debtor of rights in the

collateral. Ga. Code Ann. Sec. 109A-9—204(1). There does

not seem to be any dispute that the loan documents consti-

tute an agreement that a security interest attach. Nor does

there appear to be any dispute thatthe Bankrupt acquired

rights in the inventory collateral. Thus, the only remain-

ing question is whether value was given. A person gives

“value” for rights under Georgia law if he acquires those

rights “as security for or in total or partial satisfaction of a

pre-existing claim.” Ga. Code Ann. Sec. 109A-1—201(44).

If at the time these loan documents were executed or

afterwards the Bankrupt was indebted to Aetna, then

Aetna acquired the rights granted to it under the loan

documents for value. Whether the Bankrupt was indebted

to Aetna in January of 1974 at the time that these loan

documents were executed or thereafter will hinge upon the

discussion below concerning whether Aetna made the loan

to Paneling, as Appellants contend, or to the Bankrupt, as

the Trustee contends.

Finally, Appellants argue that Aetna did not foreclose

upon the Bankrupt in a commercially reasonable manner.

Other than the naked and argumentative assertions embo-

died in their Motion, Appellants have offered no evidence

to indicate any commercial unreasonableness on Aetna’s

part in foreclosing upon the property of the Bankrupt.

Apparently, the alleged commercial unreasonableness to

which Appellants refer is Aetna’s alleged seizure of lumber

owned by them or in which they had an interest. As the

Court noted in its June 17th order, such facts might if true

support their claim for relief in their intervention action

against Aetna, but would not constitute grounds for relief

by the Trustee.

Turning to Appellants’ claim for relief under subpara-

graph (2) of Rule 60(b), Appellants maintain that they

have “newly discovered evidence” which would presumbly

satisfy the conditions for qualification as such. Appellants

contend that their newly discovered evidence indicates

that only one loan was made to the Georgia Paneling

group and that the one loan was made to Paneling rather

than to the Bankrupt. Appellants further contend that

Aetna converted property of the Bankrupt when it ob-

tained the insurance proceeds paid on account of the fire

loss at the Forest Park warehouse. They go on to argue

that Aetna’s alleged refusal to return the portion of such

proceeds attributable to the destruction of equipment in

which Ann Roberts, an employee of “Forest Park”, had an

interest,* discharged the Bankrupt as a guarantor of the

indebtedness to Aetna. Appellants assert these latter in-

stances of newly discovered evidence under the heading of

“summary of facts”, without citing authority for the con-

clusions of law derived therefrom other than reference to

Appellants’ deductions as to Aetna’s “bad faith”.

To prove their contention that Aenta made no loan to the

Bankrupt, Appellants would necessarily have to overcome

the clear meaning of the language contained in the various

loan agreements between Aetna and the Bankrupt. They

would apparently claim to have newly discovered parol or

other evidence which would clearly prove a course of con-

duct inconsistent with such language. The documentary

evidence and the record reflecting the conduct of the par-

ties simply does not support such a finding or conclusion.

The clear language of the loan documents executed by the

Bankrupt and the Georgia Paneling group evidenced the

fact that Aetna entered into an accounts receivable financ-

ing arrangement. As Appellants admit, most if not all of

such documents, including notes, security agreements,

guaranty agreements and cross collateralization agree-

ments, were available to Appellants and inspected by their

counsel at least as early as October 6, 1975, being seven

months prior to the May 18th hearing on the Trustee’s

settlement application.

Of greater significance, the uncontroverted evidence in

the record reflects that Aetna made wire transfer advances

directly to the Bankrupt’s checking account with C & S

against receivables pledged to Aetna by the Bankrupt.

Readily available records demonstrate that Aetna made

such advances directly to the Bankrupt in the amount of at

least $519,000.00 during the period of November 30, 1973,

through April 11, 1974. (Compare highlighted cash ad-

vances appearing on Aetna’s MTD Transaction Summaries

(Trustee’s Exhibit “B”] with highlighted deposit entries

shown on the Bankrupt’s checking account statements

“Appellants themselves seem to be confused about who had the inter-

est. In their Brief, they indicate that Ann Roberts held the interest

while in their Motion they say Leonard Roberts had the interest.

from C & S [Trustee’s Exhibit “C”]). Moreover, Appellants

themselves observe that the Bankrupt forwarded to Aetna

checks received from the Bankrupt’s account debtors in the

approximate amount of $263,657.96. See Affidavit of W.

Kent Bishop, attached to Appellants’ Brief, at paragraph

70. There is no evidence that Paneling made any payments

to Aetna. The fact of an agreement to advance money to

the Bankrupt, together with the fact that substantial ad-

vances were actually made to the Bankrupt and payments

made to Aetna by the Bankrupt, convincingly demonstrate

that the Bankrupt was indebted to Aetna pursuant to the

loan agreements.

While the loan agreement, which speaks for itself, and

the foregoing analysis of the money had and received by

the Bankrupt should clearly dispose of Appellants’ conten-

tion that Aetna never made a loan to the Bankrupt,

Appellants point to the following in their attempt to rebut

the clear and convincing evidence of a loan from Aetna to

the Bankrupt: a Loan Application Approval form, being an

internal document prepared by Aetna to assist in deter-

mining the feasibility of an accounts receivable financing

arrangement, which indicates Aetna’s initial contempla-

tion that Paneling was to be the borrower; the testimony of

an officer of Aetna to the effect that only “one loan” was

made to the Bankrupt and the Georgia Paneling group; an

analysis of invoices, being those presumably pledged to

Aetna, which reveals that eighty percent bore Paneling’s

name and only twenty percent that of the Bankrupt; and

the fact that Aetna’s internal records of the amount of

daily pledges, advances and receipts, which are embodied

in a document called an “MTD Transaction Summary” (See

examples in Trustee’s Exhibit “B”) show that the loan was

carried in Paneling’s name.

When viewed in context and with the other evidence

available in the record, the support Appellants would offer

for their contentions is not sufficient to carry their burden

of proof, whether such were to be characterized as newly

disovered or otherwise. The Court agrees with the Trustee

that the loan application approval form cannot be used to

demonstrate that no loan existed between Aetna and the

Bankrupt as it has no probative value for the purpose of

rebutting the uncontradicted evidence that funds were in

fact advanced by Aetna to the Bankrupt. Indeed, it is

apparent from the testimony of T. R. Locke, the President

of the Bankrupt and of Paneling, that about the same time

that Aenta was preparing the cited loan application ap-

proval, Paneling was transferring assets from its Oak

Street location to the. then recently opened warehouse of

the Bankrupt. (See Vol. I, Locke Disposition, 5/10/77, pp.8-

11, Trustee’s Exhibit “D”) The record reflects Aetna’s

awareness and concern regarding such intercompany

transfer of assets as well as its resulting decision to docu-

ment the loan in the name of the Bankrupt as well. (See

Trustee’s Exhibit “E”, correspondence from Aetna concern-

ing the loan documents, dated 6/25/73, addressed to Panel-

ing, and the(sic] 7/2/73, addressed to the Bankrupt.)

Moreover, a subsequent Loan Application Approval form

dated October 16, 1973, which the Appellants do not cite,

bears only the name of the Bankrupt as the applicant.

Further, on this later application, Paneling is shown only

as a guarantor and referred to as a “sales agent” and “shell

corporation”. (See Trustee’s Exhibit “E”). A further indica-

tion of the true identity of the borrower is the fact that the

loan documents dated October 22, 1973, were executed in

the wake of the October 16, 1973, loan application evidenc-

ing the full awareness by all parties of the changed cir-

cumstances of Paneling and the Bankrupt. (See Trustee’s

Exhibit “A”).

As to said changed circumstances, it should also be noted

that at the time of the original loan application, the

Bankrupt had not yet begun to function as the wholesaler

and “parent” of the Georgia Paneling group. After its

establishment at the Mimms Drive Location, which Appel-

lants at pages 8 and 9 of their original Motion and in their

Brief at page 6 concede took place subsequent to the June

loan application form, the Bankrupt operated as the

wholesale operation arm of the Georgia Paneling group

and made all purchases of supplies, which it consigned to|

the other stores in the Georgia Paneling group for sale to

the public. See Vol. I, Locke Deposition (5/10/77) at pages

10-14, (Trustee’s Exhibit “D”); Vol. II, Locke Deposition (5/

11/77) at pages 64-68; Locke Deposition (9/20/74) at pages

7, 11-12 and 40, (Trustee’s Exhibit “G”); First Meeting of

Creditors at pages 18-21, 24-26. As Mr. Locke's testimony

makes abundantly clear, the Bankrupt owned all of the

inventory sold by the Georgia Paneling group of compa-

nies. All receivables generated by such retail sales of its

inventory were treated as receivables of the Bankrupt

which it assigned to Aetna. See also Affidavit of Ann G.

Roberts, attached to Appellants’ Brief, at paragraph 23.

The money advanced by Aetna against these receivables

was advanced to the Bankrupt, which, unlike the retail

stores in the group, required funds to replenish its inven-

tory and to continue to place the inventory ~» consignment

with the retail stores. Mr. Locke unequivocally stated that

the retail stores in the Georgia Paneling group owned

neither the inventory sold nor the receivables generated

from such sales, all of which were owned by the Bankrupt.

Because the retail stores actually sold the inventory to the

public, it is logical that they would use their own invoices

to reflect such sales rather than invoices bearing the name

of the Bankrupt. That Aetna fully understood the afore-

described operational arrangements of the Paneling group

is clearly evidenced by its own interoffice memorandum of

October 16, 1973, precisely detailing the same (See

Trustee’s Exhibit “H”). Again, it would seem unreasonable,

if not inconceivable, that Aetna with full awareness of the

facts would make loans to “shell corporations” and “sales

agents” as opposed to the Bankrupt.

As the Trustee correctly observes, the statement by the

Aetna officer to the effect that there was just “one loan”

made to the Bankrupt and the Georgia Paneling group

must be read in the context within which it was made.

Such a reading will certainly suggest he merely meant

that since the companies were under common manage-

ment, ownership and control and viewed by Aetna in this

light, Aetna needed to document the loan in the name of

each of the companies, to obtain corporate guaranties from

each for the debts of the others, and to perfect security

interests in the property of each of the companies. This

was felt necessary due to the frequent physical transfer of

inventory from the Bankrupt to the retail companies and

the fact that most of the Bankrupt’s receivables were

generated by sales through the retail companies of inven-

tory consigned to them by the Bankrupt. At the same time,

Aetna understandably wanted the advances on its “one

loan” to the Bankrupt to be handled through one bank

account in the name of the Bankrupt. (See Trustee’s Ex-

hibits “A”, “E”, “F”, “H”, and “I”, the latter being the

deposition of Charles R. White, 5/3/77, containing the

referenced statement of an Aetna officer at pages 153-155).

As to Appellants’ analysis of the invoices, again refer-

ence need only be made to the aforecited testimony of Mr.

Locke who indicated that all accounts of the Georgia

Paneling group were owned by the Bankrupt and, there-

fore, must necessarily have been pledged to Aetna by

Bankrupt. Even assuming that each of the invoices re-

ferred to by Appellanis was actually pledged to Aetna,

there is nothing in the record to indicate their being pleged

by anyone other than the Bankrupt, the owner of the

accounts receivable evidenced by the invoices. Further,

various correspondence to Aetna on the letterhead of the

Bankrupt indicates its active authority and responsibility

with respect to the pledging of accounts. (See Trustee’s

Exhibit “J”). Even assuming that Appellants’ analysis of

the various invoices should be taken at face value and

without consideration of the circumstances which explain

the reason why Paneling invoices were in the Bankrupt’s

possession rather than Paneling’s possession, the affidavit

attached to Appellants’ First Amendment to their Motion

reflects that approximately 20% of the invoices which

totalled about $156,833.48 were invoices on the Bankrupt’s

letterhead. Appellants would therefore be required to ad-

mit, even under their theory of the facts, that Aetna did

advance sums of money to the Bankrupt pursuant to an

assignment of these invoices and that the Bankrupt was

accordingly more than a “mere guarantor” of Paneling’s

alleged indebtedness to Aenta.

Finally, the appearance of the name of Paneling in the

headings of the MTD Transaction Summaries (Trustee’s

Exhibit “B”) is at best indication only that Paneling was

the name initially placed in a computer to designate the

account. The similarity of the corporate names of the

Bankrupt and Paneling also could account for the use of

“Ga. Paneling Co.” on these Summaries. As noted, the

substantive portions of the MTD’s evidence the fact of cash

transactions between Aetna and the Bankrupt in a man-

ner completely consistent with the clear meaning of the

language appearing in the written loan agreements be-

tween Aetna and the Bankrupt. (See Trustee’s Exhibits “B”

and“C”). In view of the history of the structural changes in

the Paneling group, the name in the heading is unper-

suasive and insufficient as evidence, if not irrelevant, for

the purpose of overcoming the writings, documents and

oral testimony of the parties and disproving the existence

of the cash advances to the Bankrupt which they clearly

demonstate.

Appellants have simply failed to offer any rebuttal to

the fact that the Bankrupt executed an accounts receivable

financing agreement with Aetna, forwarded its invoices as

well as those of Paneling to Aetna and received substantial

sums by wire transfer advances from Aetna against the

invoices thus assigned. From a review of the record, it is

clear, contrary to the contentions of Appellants, that a loan

and indebtedness existed between Aetna and the Bank-

rupt, and that the foreclosure by Aetna on the assets of the

Bankrupt was in exercise of its rights under the written

agreements evidencing said loan and indebtedness.

With regard to Appellants’ contentions that Aetna

wrongfully retained the proceeds of insurance paid as a

result of the fire at the Forest Park company, the loan

agreements show that Aetna was entitled to be the loss

payee with respect to any such fire insurance proceeds and

that Aetna had a security interest in the inventory of the

Bankrupt located at the Forest Park store. (See Trustee’s

Exhibit “A”). Even if it were conceded for the purpose of

argument that Aetna was not entitled to such proceeds

with respect to the equipment, the injured party would be

Ann Roberts and not the Bankrupt as Appellants

content.[sic]* Further, the proceeds retained by Aetna ac-

tually reduced the Bankrupt’s debt to Aetna. Appellants’

argument that the retention of the fire insurance proceeds

prevented the rebuilding of the Forest Park store and

thereby injured Paneling or the Bankrupt by depriving it

*In fact, Appellants concede that Aetna, used a portion of the insurance

proceeds to pay off an indebtedness of Ann Roberts to the First

National Bank, which had a security interest in the equipment. There

is, therefore, some question whether Ann Roberts was injured by

Aetna’s actions, even assuming the truth of Appellants’ assertions.

of substantial cash flow is too speculative to merit com-

ment. Nor is there anything of probative value in the

record to demonstrate that this was the case. Aetna did not

cause the fire and it was entitled to receive the proceeds of

insurance as proceeds of its collateral. Finally, Appellants’

theory that Aetna’s sole motivation in having the January

loan documents executed was in order for it to obtain the

insurance proceeds is completely implausibl. inasmuch as

Aetna was already entitled to those proceeds under the

June loan documents.

Apart from the lack of merit and probative value of the

evidence which Appellants claim supports their Motion

under subparagraph (2) of Rule 60(b), the Court believes

that such evidence was either known, or by the exercise of

due diligence could have been discovered, by Appellants

prior to the May 18th hearing or within ten days there-

after. Appellants’ counsel admits that he had reviewed all

of the pertinent loan documents well before the May 18th

hearing. In addition, Appellants’ counsel was present at

the first meeting of creditors of the Bankrupt and attended

the depositions of T. R. Locke (taken on September 9, 1974)

and of J. Wayne French (taken on September 20, 1974),

from which he learned about the fire at the Forest Park

warehouse, the payment to Aetna of the insurance pro-

ceeds, the structure of the Bankrupt as wholesaler to the

Georgia Paneling group as retail stores and the accounts

receivable financing arrangement between Aetna and

Bankrupt. See Affidavit of W. Kent Bishop, attached to

Appellants’ Brief, at paragraph 17-22. Appellants there-

fore had at their disposal most of the facts which they now

claim to be newly discovered. Appellants have offered no

reason for their failure to obtain prior to the May 18th

settlement hearing copies of the MTD Transaction Summa-

ries and the various Paneling invoices. The invoices, at

least, were in the possession of the Bankrupt or the

Trustee prior to the May 18th hearing and Appellants

could have examined them as a matter of right at any time

upon request. The Court concludes that, rather than hav-

ing uncovered newly discovered evidence, Appellants have

simply come forward with newly thought of theories. Nei-

ther their “new evidence” nor their “new theories” is

persuasive in light of the overwhelming evidence in sup-

port of the Trustee’s position and, had such evidence and

theories been presented at the May 18th hearing, the

Court’s ruling would have been no different than it was

with respect to the Trustee’s settlement application.

Finally, the Court concludes that Appellants have dem-

onstrated no reason for their failure to file the instant

Motion sooner than they did. Although their Motion was

filed with the District Court barely within the one-year

maximum period allowed by Rule 60(b), the Court none-

theless believes that the Motion was not filed within a

reasonable period of time after the entry of this Court's

order of June 17th and was motivated primarily as a

substitute for an appeal from the District Court’s affirm-

ance of that order.

Conclusion

A hearing on a motion under Rule 60(b) is not intended

to serve as a ‘vial on the merits of the controversy out of

which resulted the order from which the movant seeks

relief. Rather, such a hearing is designed to afford the

movant an opportunity to inform the Court of the exis-

tence of concrete evidence which would support his motion

and which would warrant setting aside the Court’s order.

In the instant case, Appellants have used a “shot-gun

approach” by raising as many issues of fact and theories of

law as could be mustered by their counsel in the apparent

hope that one or more of such issues and theories might be

persuasive to the Court. They have utterly failed to dem-

onstrate to the Court the existence of any evidence that

would entitle them to the relief requested by their Motion

and they have had more than ample time and opportunity

to do so. In short, Appellants have failed to carry their

burden of proof.

As the Court noted in its June 17th order, a hearing on a

Section 27 settlement application is not intended to serve

as a trial on the merits of the matter to be settled. The

purpose of such an application is to resolve a controversy

short of a trial and it is the responsiblity of the Court to

assess whether the settlement is fair under all the circum-

stances. Doubtless it is that in commercial matters counsel

for objecting creditors can conjur up a host of factual and

legal issues which might be argued at trial, and urge such

issues as reasons for requiring the matter to be litigated

rather than settled. However, the Court must examine,

among other things, the probability of success or failure on

the merits and the expense of the litigation in passing

upon such a settlement application. In the instant case the

settlement was approved with such considerations in mind

and that approval was affirmed on appeal. Appellants now

argue that Rule 60(b) should afford them relief. The Court

has reviewed Appellants’ asserted grounds for such relief

and finds them unpersuasive, largely speculative and in

many respects frivolous.

Accordingly, for all of the reasons stated in this Opinion,

the Court hereby DENIES Appellants’ Motion and will

schedule a hearing upon the Trustee’s application and that

of Aetna for an assessment of attorney’s fees against

Appellants.

This 5th day of January, 1978.

/s/ WILLIAM L. NORTON, JR.

U. S. BANKRUPTCY JUDGE

U. S. DISTRICT COURT

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

IN RE:

GEORGIA PANELING SUPPLY, INC.

B74-1628A

[Filed April 15, 1977]

ORDER

This is an appeal from the order of the bankruptcy judge

entered June 17, 1976, approving the application of the

trustee for settlement of certain claims against Aetna

Business Credit, Inc., one of the defendants in a plenary

action brought by the trustee to set aside certain voidable

preferences and/or fraudulent transfers. See Pennington,

Trustee v. Aetna Business Credit, Inc., et al., Civil Action

No.75-1540A (N.D. Ga.) Appellants herein further appeal

from the denial of their application to remove the trustee

and to appoint a successor trustee.

There are several grounds for appeal; however, they can

be conveniently divided into two basic categories: (1) juris-

dictional and (2) substantive. Appellant contends that

since the plenary action is presently before this court, this

court rather than the bankruptcy judge had exclusive

jurisdiction to entertain any application for settlement in

the plenary action, or at the very least, under principles of

judicial comity or quasi-abstention the bankruptcy judge

should have avoided ruling on the merits of the application

for settlement because this court was to a considerable

extent embroiled in the instant controversy, as well as the

bankruptcy court. Secondly, appellants contend that the

settlement of such claims against Aetna is contrary to the

interests of the estate. We disagree with the appellants in

both respects.

The appellants herein are seven unsecured creditors of

the bankrupt, who have been allowed to intervene in the

plenary action before this court by an order entered Sep-

tember 30, 1976. In that order, we noted that the appel-

lants, as unsecured creditors who had provided supplies to

the bankrupt when it was arguably insolvent, and at a

time when such insolvency was allegedly known to Aetna,

had significant and protectable property interests in the

action, and that their ability to protect such interests

might be impaired or frustrated by the action or inaction of

the trustee. Accordingly, the court allowed filed their

amended complaint; however, in an order dated February

25, 1977, this court dismissed several of the counts of their

complaint for lack of standing and for failure to state a

claim upon which relief can be granted, since several of the

causes of action asserted were under well settled bank-

ruptcy principles unique to the trustee, who stands in the

shoes of the bankrupt. Essentially the intervenors’ claims

that remain pending in the plenary action, and those

which they alone have standing to assert, are in essence

bottomed upon common law fraud and deceit and conver-

sion.

In the bankruptcy action herein, the trustee applied to

the bankruptcy judge for approval of a compromise and

settlement of the trustee’s action against Aetna in consid-

eration of $350.00. Section 27 of the Bankruptcy Act, 11

U.S.C. Sec. 50 provides that:

A receiver or trustee may, with the approval of

the court, compromise any controversy arising in

the administration of the estate upon such terms

as he may deem for the best interest of the

estate.

As a general proposition the compromise and settlement

should not be set aside unless the record clearly demon-.

strates that the court has acted arbitrarily or that the

compromise itself actually is not in the best interests of the

estate. In re Kansas City Journal-Post Co., 144 F.2d 816,

817 (8th Cir. 1944); Ashbach v. Kirtley, 289 F.2d 159 (8th

Cir. 1961). In determining the advisability of accepting an

offer of compromise in the bankruptcy context, many con-

siderations are relevant, including, but not limited to (1)

the probability of success in the litigation, (2) the difficul-

ties, if any, to be encountered in the matter of collection,

(3) the complexity of the litigation involved, and the ex-

pense, inconvenience, and delay necessarily attending it;

and (4) the paramount interests of the bankrupt’s credi-

tors. Drexel v. Loomis, 35 F.2d 800, 806 (8th Cir. 1925).

In sum, the question before the court is whether the

proposed settlement represents a “reasonable evaluation of

the risks of the litigation.” Florida Trailer and Equipment

Co. v. Deal, 284 F.2d 567, 571 (5th Cir. 1960). The Fifth

Circuit has clearly articulated the legal standard and

reasoning’ process with which to explore that inquiry,

stating:

Of course, the approval of a proposed settle-

ment does not depend on establishing as a matter

of legal certainty that the subject claim or coun-

terclaim is or is not worthless or valuable. The

probable outcome in the event of litigation, the

relative advantages and disadvantages are, of

course, relevant factors for evaluation. But the

very uncertainties of outcome in litigation, as

well as the avoidance of wasteful litigation and

expense, lay behind the Congressonal infusion of

a power to compromise. This is a recognition of

the policy of the law generally to encourage set-

tlements. This could hardly be achieved if the

test on hearing for approval meant establishing

success or failure to a certainty. Parties would be

hesitant to explore the likelihood of settlement

apprehensive as they would then be that the

application for approval would necessarily result

in a judicial determination that there was no

escape from liability or no hope of recovery and

hence no basis for a compromise.

Id. at 571.

The wisdom of this reasoning cannot be doubted in light of

the judicial approval that such reflections have attained in

both the bankruptcy context, e.g., Matter of Equity Fund-

ing Corp. of America, 416 F. Supp. 132 (C.D. Cal. 1975),

and even in situations outside the bankruptcy context.

E.g., Allegheny-Ludlum Industries, Inc.{sic], 517 F.2d 826

(5th Cir..1975).

Nevertheless, although courts do not ordinarily scruti-

nize the merits of compromises involved in suits between

individual litigants, it is essential that in bankruptcy

proceedings proposed settlements receive the “informed

independent judgment of the bankruptcy court” and such

an informed decision can only be premised upon sufficient

investigation and judicial inquiry into the facts. See, e.g.,

Protective Committee v. Anderson, 390 U.S. 414, 424-25

(1968); In re Albert Harris, Inc., 313 F.2d 447 (6th Cir.

1963); Ashbach v. Kirtley, supra; See also Upson uv. Otis,

155 F.2d 606 (2d Cir. 1946); Conway v. Silesian-American

Corp., 186 F.2d 201 (2d Cir. 1950).

At the hearing held to consider the application for ap-

proval of the settlement, the attorney for the trustee

stated that he first learned of the possibility that Aetna

had been given a voidable preference at a deposition in

which one of Aetna’s officers stated that when Aetna took

possession of the inventory and receivables, Aetna may

have received approximately $2,000.00 excess over the

amount of the bankrupt’s obligation to it. However,

through later investigation, albeit informal, the trustee

became aware that the security interest had been perfected

more than four months prior to the filing of the bank-

ruptcy petition and further that under the terms of the

security agreement Aetna was entitled to recover costs of

collection and attorney’s fees in connection with the en-

forcement of its perfected interest. The attorney further

stated that while the occurrences certainly supported some

inference or a claim of fraud against Aetna, in the sense

that Aetna allegedly knew of the bankrupt’s insolvency

and allowed unknowing unsecured creditors to deliver sup-

plies and material so that Aetna could take over a substan-

tial inventory when it enforced its rights as a secured

creditor, the bankrupt was not thereby injured since its

obligations had been satisifed. At the most, any fraud or

deceit that had been perpetrated was injurious to several

unsecured creditors who continued to supply the debtor

unwittingly and without knowledge of the bankrupt’s in-

solvency, rather than the bankrupt itself. Thus, on the

basis of several decisions and discussions, he concluded

particularly in light of one decision, Cissel v. Home Assur-

ance Co., 521 F.2d 790 (6th Cir. 1975), cert denied, 95 S. Ct.

957, that although there might be claims for fraud and

conversion arising out of the transaction, he, as the

trustee, did not have standing to pursue them. Moreover,

to the extent that the original complaint may have indica-

ted that Aetna had acted in a commercially unreasonable

manner in exercising its rights under the security agree-

ment, it became evident that the officers and principals of

the bankrupt had voluntarily and knowingly consented to

Aetna’s exercise of its rights as a secured party, with the

result that any claims by the bankrupt based on violations

of Article 9 of the U.C.C. were less than credible. In sum,

in view of his threshold standing disabilities and recogniz-

ing the unlikelihood of success on the voidable preference

claims, the trustee concluded that it would be preferable to

settle his claims against Aetna so that he would pursue

more vigorously the claims against C & S, upon which he

believed he had a much higher probability of success and

from which all the creditors of the bankrupt would stand to

benefit. On the other hand, several of the appellants

herein had already instituted their own actions for fraud

and conversion, which they, of course, had standing to do,

since they were the ones allegedly injured by Aetna’s

conduct.

Arguably, the bankruptcy judge might have required the

trustee to produce more detailed evidence as to the prob-

able lack of success on the merits of his voidable preference

action; however, since his decision to settle the action was

premised primarily on his lack of standing — which is

wholly a legal conclusion rather than factual — the evi-

dence presented was sufficient to support the bankruptcy

decision to approve the compromise and settlement. In

sum, the bankruptcy judge did not err in failing to require

more evidence, and we are unable to conclude that the

bankruptcy judge’s findings are clearly erroneous or con-

trary to the best interests of the estate as a whole.

Accordingly, for the reasons hereinabove expressed, the

bankruptcy judge’s order of June 17, 1976, granting the

application of the trustee to settle and compromise his

claims against Aetna in the pending plenary action is

hereby AFFIRMED and is hereby AFFIRMED in all other

respects.

IT IS SO ORDERED.

This, the 15th day of April, 1977.

/s/) RICHARD C. FREEMAN

UNITED STATES DISTRICT JUDGE

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

In the Matter of:

GEORGIA PANELING SUPPLY, INC., Bankrupt

Bankruptcy Case No. B74-1628A

[Filed June 17, 1976]

ORDER

On May 18, 1976, a hearing was held before this Court

on the application of John C. Pennington, Trustee of the

estate of Georgia Paneling Supply, Inc. the above-named

Bankrupt, for leave to settle and compromise a certain

controversy and on the application filed by seven unse-

cured creditors of the estate to remove the Trustee and to

appoint a named successor trustee.'

The Trustee’s application seeks leave of this Court to

settle with Aetna Business Credit, Inc. (hereinafter

“Aetna”) a lawsuit brought by the Trustee against Aetna

and The C & S Bank of North Fulton (hereinafter ‘C & S”),

which is pending in the United States District Court for

the Northern District of Georgia, Atlanta Division, as civil

action number C75-1540A. The application of the unse-

cured creditors, who appeared in opposition to the Trustee’s

application to settle and compromise, seeks to remove the

Trustee and to appoint a named successor trustee to prose-

cute the pending action against Aetna and C & S.? At the

time of the hearing, counsel for the unsecured creditors

filed an additional application requesting the Court to

decline to rule on the Trustee’s application and to leave to

the District Court Judge before whom the Trustee’s action

is pending the decision whether the proposed

' The seven unsecured creditors represented were International Paper

Company, Walter E. Heller & Company (Inc.), Johns-Manville Sales

Corporation, Versapanel, Inc., Goldrey(sic] Forest Products, Inc., and

White Lumber Sales, Inc.

* The application of the unsecured creditors also requests that counsel

representing them be retained to represent the successor trustee in the

action pending against Aetna and C & S.

settlement between the Trustee and Aetna is in the best

interests of the estate in bankruptcy.

The Court having heard argument of counsel appearing

on behalf of the Trustee, Aetna and the unsecured credi-

tors, and having considered all pleadings and matters

before it, hereby makes the following findings of facts and

conclusions of law:

Findings of Fact

On July 29, 1974, Georgia Paneling Supply, Inc. (here-

inafter “the Bankrupt”) was adjudicated a bankrupt upon a

petition filed against it by several of its unsecured credi-

tors. Thereafter, on September 10, 1974, John C. Pen-

nington was appointed and duly qualified as Trustee of the

Bankrupt’s estate.

Prior to the filing by the Trustee of his action against

Aetna and C & S, three unsecured creditors of the Bank-

rupt — Continental Forest Products, Inc., Hampton Lum-

ber Sales Company and Walter E. Heller & Company (Inc.)

— had filed separate civil actions against Aetna for alleged

fraud and conversion committed by Aetna in connection

with its foreclosure as a secured creditor in June of 1974

upon inventory of the Bankrupt. The Hampton and Heller

lawsuits are now pending in the United States District

Court for the Northern District of Georgia and the Con-

tinental lawsuit is currently before the Civil Court of

Fulton County.’ These three creditor plaintiffs essentially

allege in their respective complaints that Aetna, in fore-

closing upon inventory of the Bankrupt during June of

1974, fraudulently obtained possession of their lumber

which had been sold the the Bankrupt on credit and

* The District Court actions are captioned as follows: Hampton Lumber

Sales Company v. Aetna Business Credit, Inc. (Civil Action No. C74-

1679A); Walter E. Heller & Company (Inc.) v. Aetna Business Credit,

Inc. (Civil Action No. C75-216A).

The state court action is captioned as follows: Continental Forest

Products, Inc. v. Aetan{sic] Business Credit, Inc. (Civil Action No.

493498).

Counsel for the seven unsecured creditors appearing in opposition to

the Trustee’s application to settle also represents Hampton and Heller

in the two District Court actions.

converted this lumber to its own use by selling the lumber

to liquidate the indebtedness of the Bankrupt to Aetna.

Following his appointment and qualification, the

Trustee was informed of the pendency of these three credi-

tor actions and was invited by counsel for the two creditor

plaintiffs suing in federal court to attend a deposition that

was scheduled to be taken of an officer of Aetna in order

that the Trustee might determine whether plenary pro-

ceedings should be instituted by him against Aetna on

behalf of the Bankrupt’s estate. As a result of certain

testimony given at this deposition to the effect that Aetna

may have collected from its foreclosure an amount in

excess of the indebtedness owed it by the Bankrupt, the

Trustee filed a civil action against Aetna on July 9, 1975,

in the Superior Court of Fulton County, wherein he alleged

that Aetna acted fraudulently with respect to the unse-

cured creditor/suppliers of the Bankrupt and sought to

avoid and to recover for the estate the amount of alleged

preferential transfers suffered by the Bankrupt and re-

ceived by Aetna. The Trustee’s action was subsequently

removed to the United States District Court for the North-

ern District of Georgia, where at the time of the Trustee's

instant application, it was pending as civil action file

number 75-1540A.

After conducting informal discovery and having received

additional information from counsel for Hampton and Hel-

ler, the Trustee concluded that Aetna had a valid perfected

security interest in the inventory of the Bankrupt; that the

amount of money which Aetna had allegedly collected in

excess of the indebtedness owed it by the Bankrupt repre-

sented the costs and attorney’s fees incurred by Aetna in

connection with the foreclosure, which under its security

and loan agreements with the Bankrupt, it was entitled to

retain; and that there was a serious question whether the

Trustee had legal standing to prosecute on behalf of the

estate the fraud claims affecting only a limited number of

unsecured creditor/suppliers of the Bankrupt.

Accordingly, the Trustee and Aetna entered into settle-

ment negotiations, which resulted in an agreement to

settle the lawsuit with Aetna for $350.00, subject to the

approval and confirmation of this Court. On January 20,

1976, the Trustee made application to the Court to settle

his claim against Aetna for the aforesaid amount and a

hearing was held the same day. At this hearing were

present counsel for the Trustee, counsel for Aetna and

counsel for the seven unsecured creditors, which appeared

in opposition to the settlement propusal. After hearing all

counsel present, the Court determined at the request of

counsel for the unsecured creditors to defer consideration

of the fairness of the proposed settlement in order that

counsel for the creditors might have an opportunity to

submit to the court a legal brief on the issues raised.

Several months elapsed without any brief having been

filed with the Court by any party and again the Trustee

made application to the Court to settle and compromise his

claim against Aetna. Shortly thereafter, the seven unse-

cured creditors filed an application to remove the Trustee

on the grounds that the Trustee has failed to discharge the

duties of his office by agreeing to settle his suit against

Aetna upon the terms proposed without having conducted

formal discovery. On May 18, 1976, a hearing was held on

the Trustee’s application and the application of the seven -

unsecured creditors, at which time counsel for the unse-

cured creditors presented an additional application to the

Court requesting that the Court refrain from ruling on the

Trustee’s application on the ground that the District Court

Judge before whom the Trustee’s action was pending wis

better situated to determine the fairness of the settlement

proposal.

Conclusions of Law

The Court feels constrained to address first the question

whether it should refrain from ruling on the Trustee's

application in order that the District Court Judge before

whom the action is pending may entertain consideration of

the fairness of the proposed settlement. The seven unse-

cured creditors argue that the Court should decline to rule,

but they do not contend that the Court does not have the

authority to rule. Section 27 of the Bankruptcy Act confers

the requisite authority upon this court by providing that a

trustee “may, with the approval of the court, compromise

any controversy arising in the administration of the estate

upon such terms as he deems for the best interest of the

estate.” See also Bankruptcy Act Sec. 2a(7) (granting juris-

diction to the Bankruptcy Court to determine controver-

sies). It cannot be doubted that this Court has authority to

approve or disapprove a settlement of the type presented

by the Trustee herein. See generally 2A Collier, Bankruptcy

Sec. 27.02 (14th ed. 1974). Accordingly, the question re-

duces itself to one solely as to whether the Court should

decline to rule. The unsecured creditors maintain that the

Court should because it does not have all the facts and

pleadings before it. Yet, the material facts of the case are

uncontested, the issues well defined, and, as conceded by

these creditors, the absence of formal discovery by the

Trustee in this case leaves little before the District Court

Judge that is not already before this Court. This aside,

however, the Court is of the opinion that it would be an

abdication of the Court’s responsibility to decline to rule

upon a matter which it has the authority to decide and

which has been duly brought before it for decision. Accord-

ingly, this application of the unsecured creditors is denied.

The second matter before the Court is the Trustee's

application to settle his claim against Aetna upon the

terms previously discussed. In passing upon an application

to settle a claim asserted by a trustee in bankruptcy, the

Court should be guided by what it perceives to be in the

best interests of the estate. See 2A Collier, supra Sec. 27.04

at 1092. A determination of what is in the best interests of

the estate requires consideration of a number of variables,

including those set forth in Drexel v. Loomis, 35 F.2d 800

(8th Cir. 1929):

“(a) The probability of success in the litigation;

(b) the difficulties, if any to be encountered in the

matter of collection; (c) the complexity of the

litigation involved, and the expense, incon-

venience and delay necessarily attending it; (d)

the paramount interest of the creditors and a

proper deference to their reasonable views in the

premises.”

Applying the first of the above-quoted criteria to the

instant case, the Trustee contends, and the Court is in-

clined to agree, that the probability of success in the

litigation against Aetna is negligible. The essence of the

Trustee’s complaint is that Aetna received a voidable pref-

erence from the Bankrupt. Aetna maintains, and the

Trustee after investigation concedes, that Aetna had a

valid security interest in the accounts receivable and in-

ventory of the Bankrupt which was perfected more than

four months before the date of bankruptcy. The law is well

established that a security interest perfected more than

four months prior to bankruptcy is immune from attack by

a bankruptcy trustee, even though the security interest

does not attach to the collateral until some time within the

four-month period. See, e.g., In re Wileo Forest Machinery,

Inc., 491 F.2d 1041 (5th Cir. 1974); In re King - Porter

Company, 446 F.2d 722 (5th Cir. 1971); DuBay v. Williams,

417 F2d 1277 (9th Cir. 1969), cert. denied sub nom., France

v. Union Bank & Savings Co., 396 U.S. 827 (1969). Since

neither the Trustee in his complaint nor any unsecured

creditor of the estate allege any wrongdoing by Aetna in

connection with its foreclosure upon the Bankrupt’s prop-

erty which resulted in injury to the Bankrupt,‘ the Court

agrees with the Trustee that his voidable preference claim

is substantially without merit and that his probability of

success on this claim is slight.

As to the fraud theory asserted by the Trustee, Aetna

has contended throughout the course of the litigation, and

the Trustee upon careful review has become convinced,

since the filing of his Complaint, that there is considerable

doubt whether the Trustee has standing to maintain an

action for fraud on behalf of the estate where the fraud

alleged to have occurred injured only certain unsecured

creditor/suppliers of the Bankrupt. Essentially, the Trustee

‘ Of course, as previously discussed, the Trustee originally believed

that Aetna had collected a sum in excess of the amount owed it by the

Bankrupt. Subsequent investigation, however, revealed that these

sums were retained by Aetna as and for the costs and attorney's fees

incurred in collection which it was entitled to retain under its agree-

ments with the Bankrupt.

Counsel for the seven unsecured creditors argues further that Aetna

acted in a commercially unreasonable manner in foreclosing upon the

collateral. No allegations of commercial unreasonableness, however,

appear in the Trustee's complaint, nor does counsel for the unsecured

creditors point to any fact or suggest any basis for believing that Aetna

may have acted in a commercially unreasonable manner as to the

Bankrupt.

alleges in his Complaint that Aetna, with knowledge of the

Bankrupt’s insolvency, allowed unsecured creditor/

suppliers of the Bankrupt to sell lumber to the Bankrupt

on credit in order that Aetna might foreclose upon its

inventory lien at a time when the Bankrupt’s inventory

was sufficient for this purpose. Taking these allegations as

true for the purpose of this hearing, the Court feels that it

is these unsecured creditor/suppliers, rather than the.

Bankrupt, who were deceived and injured and they, rather

than the Trustee, who have standing to assert a claim for

recovery against Aetna. It is a fundamental principle that

a bankruptcy trustee steps into the shoes of the bankrupt

and has standing to bring any action which the bankrupt

could have brought had the bankrupt remained solvent

and bankruptcy not intervened. See. e.g., Cissell v. Ameri-

can Home Assurance, 521 F.2d 790 (6th Cir. 1975); Bayliss

uv. Rood, 424 F.2d 142 (4th Cir. 1970). A trustee may not

sue upon claims not belonging to the estate even if they

were assigned to him by creditors for convenience or other

purposes. See, In re Petroleum Corp. of America, 417 F.2d

929 (8th Cir. 1969). In the Trustee’s action, it is clear that,

if bankruptcy had not intervened, the Bankrupt could not

have maintained an action against Aetna for fraud com-

mitted against and injuring only unsecured creditor/

suppliers of the Bankrupt. Hence, the Court believe(sic]

that the question of standing might very well be resolved

adversely to the trustee were this action to be continued

against Aetna.°

In assessing the risks of litigation to the Trustee, the

Court does not undertake nor does it presume to pass

finally upon the merits of the Trustee’s claims. Rather, the

court seeks only to ascertain whether there are such risks

’ The unsecured creditor/suppliers are not prejudiced by this settle-

ment since they can always file their own actions to recover for injuries

they sustained by reason of Aetna’s alleged fraud, as indeed three such

creditors have already done. Moreoever, it is interesting to note that,

were the Trustee to recover on their behalf in his action, these unse-

cured creditor/suppliers would be forced to share pro rata in the recov-

ery with all unsecured creditors of the estate. If, on the other hand,

these creditors were to recover in separate actions against Aetna, they

would be entitled to retain the full amount of any award of damages

received.

and whether these risks are substantial enough to warrant

approval of the settlement proposed. In this respect, the

Court is mindful of the observation appearing in Florida

Trailer and Equipment Co. v. Deal, 284 F.2d 567 (5th Cir.

1960), wherein the Fifth Circuit Court of Appeals stated:

“Of course, the approval of a proposed settlement

does not depend on establishing as a matter of

legal certainty that the subject claim... is or is

not worthless or valuable. The probable outcome

in the event of litigation, the relative advantages

and disadvantages are, of course, relevant factors

for evaluation. But the very uncertainies of out-

come in litigation and expense lay behind the

Congressional infusion of power to encourage set-

tlement. This could hardly be achieved if the test

on hearing for approval meant establishing suc-

cess or failure to a certainty...”

Id. at 571 (emphasis added).

From an examination of the Trustee’s action, and based

upon the Trustee’s own analysis of the case, the Court is

satisfied that substantial litigation risks are present and

that the existence of such risks are an overriding consider-

ation in the determination whether to approve the pro-

posed settlement.’ Moreover, it should be observed that

the determination to settle this controversy upon the

terms proposed is a judgment decision of the Trustee acting

in his fiduciary capacity and based upon his assessment of

the facts and circumstances of the case following the filing

of his action. Upon a review of the Trustee’s application

and after hearing all parties concerned, the Court believes

that the Trustee’s assessment is reasonable and not erro-

neous.

Obviously, the Court must accord due respect to the

reasonable views of the unsecured creditors of the estate in

passing upon the instant application of the Trustee. While

* The Court also notes that the present posture of the case is highly

favorable to Aetna, which has three motions pending against the

Trustee — one to compel discovery, a second for sanctions and a third to

dismiss the action — each of which motions remain unopposed by the

Trustee.

seven of the Bankrupt’s unsecured creditors oppose the

settlement, the Court is compelled to find that their oppo-

sition is not warranted under the circumstances. Counsel

for the unsecured creditors argues that the sum for which

the Trustee has agreed to settle his suit as to Aetna is

unreasonable in view of the amount of damages that the

Trustee originally sought to recover from Aetna in his

Complaint. True, the settlement sum may appear trivial to

these unsecured creditors, but no more trivial than the

likelihood of recovery of any amount by the Trustee in the

instant case. The amount ultimately recovered from Aetna

through litigation might very likely prove to be less than

the amount of the settlement proposal. Moreover, by settl-

ing a questionable claim against Aetna, the Trustee is able

to devote his full energies and attention to his claim

against C & S, which he believes to be more valuable to

the estate and more certain of recovery. For the foregoing

reasons, the Court feels that, notwithstanding the opposi-

tion of these creditors, the proposed settlement is in the

best interest of the estate and should therefore be ap-

proved.

Turning to the application of the unsecured creditors to

remove the Trustee and to appoint a successor trustee to

prosecute the claim against Aetna, the Court feels that

this application is now moot by reason of the Court’s

decision to approve the proposed settlement. Moreover, the

Court feels that no grounds have been shown for the

removal of the Trustee, who the Court feels has faithfully

discharged the responsibilities and duties of his office, not

only in the instant bankruptcy case, but also in numerous

bankruptcy cases before this Court in the past. Further-

more, the Court notes that the creditors’ application was

conditioned upon the appointment of counsel for the appli-

cants to serve as counsel for the successor trustee. The

Court is of the opinion that the potential conflict of inter-

ests might arise were counsel for the seven unsecured

creditors, two of which are already represented by the

same counsel in separate actions brought by them against

Aetna, likewise to represent a successor trustee.

It is, therefore, ORDERED, ADJUDGED AND DE-

CREED, that the aplication of the Trustee to settle and

compromise is hereby approved and granted; that the ap-

plication of the unsecured creditors to remove the Trustee

and to appoint a successor trustee is denied; that the

application of the unsecured creditors requesting the Court

to decline to rule on the Trustee’s application is denied; and

that the Release of the Trustee of his claims against Aetna,

a copy of which is attached hereto as Exhibit “A”, is hereby

approved.

So ordered in Atlanta, Georgia, this 16th day of June,

1976.

/s/ WILLIAM L. NORTON, JR.

UNITED STATES BANKRUPTCY JUDGE

UNITED STATES BANKRUPTCY COURT

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF GEORGIA

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 79-1076

D. C. Docket No. B74-1628

In the Matter of:

GEORGIA PANELING SUPPLY, INC., Bankrupt,

INTERNATIONAL PAPER COMPANY,

WHITE LUMBER SALES, INC.,

QUINAULT PACIFIC CORPORATION and

GOLD REY FOREST PRODUCTS, INC., Appellants,

versus

JOHN C. PENNINGTON, TRUSTEE and

AETNA BUSINESS CREDIT, INC., Appellees.

APPEAL FROM THE

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF GEORGIA

Before HATCHETT and TATE, Circuit Judges and

GROOMS, District Judge.

JUDGMENT

This cause came on to be heard on the transcript of the

record from the United States District Court for the North-

ern District of Georgia, and was argued by counsel;

ON CONSIDERATION WHEREOF It is now here or-

dered and adjudged b

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.