Brief for the Respondent in Opposition — Defiance Industries, Inc. v. Tanzer

me COURT: Us fe oS Pe

ee “nuG2 81999

* Sapreme Court of ‘the United“ Staves

October Term, 1969. a

Ng oe No. 427.

* DEFIANCE "INDUSTRIES, INC.

. and B.S.F. COMPANY, rite

and 3 Petitioners,

ROBERT H. HUFFINES, R., EDWARD KROCK

‘and VICTOR - USCAT / sets

v.

“DEBORAH TANZER and WILLIAM PRICKETT,

RECEIVER PENDENTE LITE, _

cane

1

Respondents.

* BRIEF FOR RESPONDENTS, DEBORAH. TANZER

(AND WILLIAM PRICKETT, RECEIVER “ee niga

5 Bees LITE OF THE B.6.F. COMPANY.

oe | me Tnvinc- Monsas, :

é ie JosePH A, RosENTHAL, «

; 1101 Market Tower,

Wilmington, Delaware,

‘ Counsel for William Prickett,

ee - Receiver pendente lite of B.S.F. -—

, Company, and Deborah Taneer, se

_ Respondents. -.

Conen, Morais, anp RosenTHaL, ae

Wilmington, Delaware,

Beyepict Wotr,

Pavu L. Ross, ~~

. Howagp L. Jacoss, wy

Wore Porrzr Ross Woir & este v

New York, New. York,

Of Counsel. -

Taternetionsl, 711 So. S0th 8, Phila. Po. 19H6d—Tel SA.7-8711 Ares Code 215

>

: « z 3

4 bed \ ‘ ¥ ,

1 Z : : si

: ‘ . ; a oe z 4

No

~ay, Be

eet

4 i

OPINION BELOW

QUESTIONS PRESENTED ..

a

_ STATEMENT OF THE CASE .......+..+.--

~ ARGUMENT .....

CONCLUSION ...

Fy

-

.

a

1

sg

C 4

‘ex

Pag =

Vt

bh

.

*

5

: FF

’

‘

&

~

a F ‘

=~

3 - ~

er °. s

er

« es .

. v ;

N xf c

_ INDEX. =

- Page

. I 3

eeeceee 0 ee of we esc nieere es “4

iukankus Petes Oe ee Eee ee 2

N ° mi

eoeeve 2

; Seti

tEe cee eekves ees : 3

oeeewe ob gilt Log sta ae ee Cre Ro ane Y

F eee ae : $e

wee ceveccecccceincc ow apeepecscinesesace : 16

me

® z * a

-® ¥

- Be Sd © ei oe

ot

o

*. ie

; i

?

praareemries

.

.

ee

co a o \ a

la eet ARES : :

; a 6 ; =

fs ° =

| ae, wae ode atl 7 ; : 7 ‘

ie yee a TABLE OF CITATIONS.

"Gases: ve. | : ‘. 4 Page

e ” Bockus v, Jalfray; 8 Cir., 1934, 73 F. 2d 623° .......0. 0.000, 14,

ia _ Chase, Nat. Bank of Cify of New York: ¥. Pan American Pet. ;

» t2 Co, D.C. S. D. Cal, 1934, 9 F.Supp. 394...67...,.0.65 11

; Cockstetter v., Williams, 9 Cir,, 1925, 9 F. 2d 354........... ~ 14

Interstate Oil Co. v. Gormley, 9 Cir., 1939, 105 F. 2d 431,

; ~ cert. den. 308 U. S. 626, 60 $ . Ct. 383, 84 L. Ed. 522, reh. ‘i

: den. 309 U.S. 694, 60 S. Ct. 512, 84 L. Ed. 1035 ....... 14.

| McRaney v. Riley, 91 So. 399, 128 Miss. 665, 22 A. L..R. 685, ~~

cert. den. 260 U. S. 727, 43 S. Ct. 90, 67 L. Ed. 484...... 15°.

- Norte & Company v. Huffines, S. D. N. Y., 1968, "288 F. Sos =

SD bv nbundpeesgeee tac tpenoeescstssbveonesesahiee 5

g Pewabic Mining Co. v. “Mason, 145 U..S. 349, 12S. Ct. ay, 36

¢ SE foc dbs Aes decasbatecedceteeatetiwherenes 14

S. E. C. v. Fifth Avenue Coach Lines, Inc., D. N. Y., 1968,

De NS ON sink cht vesentecariedecbakacaceets aie a

Smith v. Hill, 3 Cir., 1925, 5 F. 2d 188,........2--00 ype

Stokes v. W illiams, 3 Cir., 1915, 226 F. 148, cert. den. 241 U. | See

ee ee ee rr eee ee 14

Tanzer v. Huffines, D. C. Del., 1968, 287 F. Supp. 273, aff'd,

eas TIee SOO Bee BD orp cwccccpecdapivcsccweoess 3,5

Yazoo v. M. V. R. Co. v. City of Clarksdale, 257 U. S. 10, 42,

S. C27, 66 L. Ed. 104 ......., pe vececececreveeecees 11,14

* Statutes: : Page

‘ National Bank Act, 12 U. S. C. Section 192 ...:........00. 14

Securities Act of 1933, Section 5, 15 U. S. C., se mates 774,

GE BBG. ccccvccgpcvvcccrccsevccccscccennewbelesccece 4

j 9B.U. S. Cs, Section-B001 ......ccsnsscescesccsedors 2,11, 12,13

28 Uz S. C., Section 2004 ....... cc cceesereeeeveees 2, 11, 12, 13

. f

/

e /

cr

IN THE

Supreme Court of the United States

el >

.

Ocrosnern TERM, 1969.

— -

No. 427.

™~

DEFIANCE INDUSTRIES, INC,

anv B.S. F. COMPANY,

Petitioners,

AND

“ROBERT H. HUFFINES, JR., EDWARD KROCK

ann V ICTOR MUSCAT

‘>

2 . 8

v.

‘ DEBORAH ‘TANZER anv WILLIAM PRICKETT,

i RECELY ER PENDENTE LITE,

X pre Respondents.

ee

” BRIEF FOR RESPONDENTS, DEBORAH TANZER

‘ . AND WILLIAM PRICKETT, RECEIVER PENDENTE

LITE. OF B. S. F. COMPANY.

OPINION BELOW.

The unreported opinion of the United States Court of

Appeals for the Third Cireuit is set forth in Appendix A

to the Petition, pages Al to A4. The United States Dis-

trict Court for the District of Delaware did not render an

opinion. 3

we

> Were

wT

2 Questions Presented

QUESTIONS PRESENTED.

1. Did the Court of Appeals correctly construe 28

U.S. C., Section 2004 as authorizing the exercise of discre-

tion by the Federal Courts in a judicial sale of .personalty

to depart from the procedures statutorily cdlled for in

sales of realty if extraordinary. circumstances exist?

2. Did the Uni States Disttict Court for the District

of Delaware nthe invoke its discretion under 28 U.S. C.,

Section 2004, consonant with the facts\and circumstances of

this case, to confirm a sale’ of a Torin without following

the procedures statutorily called for in n\sales of realty?

. U)

~ STATUTES INVOLVED.

Relevant provisions of 28 U. §. C., Sections 2001 anil

2004 are set forth,im Appendix C. to the Petition, pages *

A7-A8. J

- °

\

i)

Statement of the Case

STATEMENT OF THE CASE. =

On July 12, 1968 the United States District Court for

the District of Delaware appointed William Prickett (‘‘the

Receiver’’) as Receiver pendente lite of B. S. F. Company

(“*B. S. F.’”), a Delaware corporation. 3A-10A.* The

“ reasons for the appointment of the Receiver are set forth

in the opinion of the District Court, Tanzer v. H uffines,

D. C. Del., 1968, 287 F. Supp. 273, and in the opinion of the

Third Cireuit Court of Appeals affirming the ‘appointment,

3 Cir., 1969, 408 F. 2d 42.

On December 24, 1968 the District Court authorized

the Receiver to sell 146,228 shares of the common stock of

American Steel and Pump Corporation (‘‘A. S. P.’’) to a

David Morgan and Car] Glickman (‘‘ Mor gan-Glickmun’’)~

for $3,300,000. PA9-10... In the instant proceeding the

petitioners claim that the procedure adopted for the con-

duct: of this sale warrants review by this Court.

While the petitioners have limited their challenge to

procedural matters, some description of the events which

preceded the sale is called for because the backgroun facts

explain and fully justify not only the sale itself, but also,

and most pertinently for present purposes, the procedure

adopted for the sale. Understandably, the petitioner? pay

less than slighting attentiofi to the background facts; in-

_deed, their reference thereto is confined to one brief para-

* graph of the petition (Petition, page 3, paragraph 3).

When the Receiver. was appointed, he found B. S. F.

_ hereft of eash (100A-101A), with no prospects of receivin

income from its investments.- 100A-101A. He ae ool

. * The reference to “A” is to the pages of the haielie to the

briefs filed with the Court of Appeals and included in the record

certified by the Clerk of that Court and filed with the petition herein.

Reference to “PA” is to the pages of the Appengix to the petition :

herein and the petition is referred to as “P”.

- ,

Se Reet rae ed tae ©

. .

a.

oe. Statement of the Case

that B. S. F. desperately needed funds to meet its obliga-

tions. $800,000 worth of its debentures fall due on De- 9

cember 1, 1969. 102A-103A. $205,000 was owed to ws”

-banks. 115A, 106A-107A, 111A-112A. Approximately

$122,000 was owed on trade indebtedness, a loan from

another bank and to Glen Alden Corporation. 111A-112A, »

114A-115A. All the bank loans and these latter liabilities —

were in default (106A-107A, 111A, 114A-115A); and the-

indebtedness was constantly increasing because of unpaid —

interest, commitment fees and other charges. 102A.

B.S. F.’s plight was compounded by the fact that vir-

tually all its assets, with the exception of 17,488 A. S. P.

shares, were pledged to secure its liabilities. 101,240

-A.S. P. shares were pledged against the debentures. 14A,

99A. 20,000 A. S. P. shares were pledged to*the Guaranty |

Bank of Chicago. 14A, 107A. 7,500 A. S. P. shares were

“pledged to the Ohio National Bank. 14A, 111A, With the

debentures due on December 1, 1969 and the bank loans

alrefdy in defaylt, something had to be done to avoid a

distress sale of the A. S. P. shares which would have caused

monumental damage to B. S. F. The A. S. P. shares,

pledged against the debentures and bank loans, were not

registered under Section 5 of the Securities Act of 1933,

15 U. S. C., Sections 77A, et seq. (62A, 93A, 103A, 197A,

108A, 111A) and, accordingly, were not freely tradable;

moreover, tv¥Ading in A. S. P. stock was thin, and a distress

sale of any of the A. S. P. shares would necessarily reflect

a discount for blockage 1 in a thin market. 173A-174A, 352A-

355A. Most importantly, a piecemeal sale of the A. S. P.

shares would not reflect the control value inherent in the

entire block of, stock owned by B.S. F. 105A, 243A. In

these circumstances, it is little wonder that the Court of

Appeals observed that ‘‘. . . it was incumbent upon the

Receiver to attempt to find a solution to the corporation’s

dire financial problems.’’ PA2. {

/

2

\-

© eo

Statement of the Case . ae

Prior to and after the Receiver’s appointmenf several

concerns had made informal inquiries concerning the avail-

ability of the A. S. P. shares. 247A-248A. As the Court -

of Appeals noted: ‘‘The possibility that the stock might

be available for purchase was well known in the financial

community.’’ PA2; e.g., 1A, 205A. Nothing concrete

came of these inquiries until ‘November 1968 when, for

the first time, firm offers were made for the stock.

The first offer, made on November 6, 1968, emanated

from Victor Muscat (‘‘Muscat’’); the man largely respon+

sible-for B. S. F.’s predicament (Tanzer v. Huffines, supra,

408 F. 2d 42). Through control of B. S. F., Muscat con-

trolled A. S. P. and was its chief executive officer. 239A-

240A. In fact, in 1968 Muscat drew $61,000 in compensa-,

tion from A. S. P. 239A-240A. Itshould be noted that

Muscat also controlled Defiance Industries, Ine. (‘‘De-

| fiance®) and thus controlled both of the parties (B. S. F.

and Defiance) who prosecuted the aypeal below and who

have filed the instant petition to this Court. See PA2;

see also S. FE. C. v. Fifth Avenue Coach Lines, Inc.,

S. D. N. Y., 1968, 289 F. Supp. 3, 11.

. Not only did Muscat owe a fiduciary duty to B. S. F. .

and its stockholders, which he rarely, if ever, honored (e.g., |

_ Norte & Company v. Huffines, 8S. D. N. Y., 1968, 288 FP.

Supp. 855), but also he was intimately knowledgeable about |

A.S. P. 123A-124A; see PA4. Yet, his November 6, 1968

offer was for only $16.00 per share, more than $8.00 per

share below the Morgan-Glickman bid which Muscat,

through his controlled companies, B. S. F. and Defiance,

hypocritically railed against on the appeal below and, of

- course, in the petition filed in this Court. The Receiver

rejected Muscat’s $16.00 per share offer and not even the

petitioners have had the temerity to criticize that eminently

sound judgment.

’

a e ~~

—

—

a,

“4

6 Statement ‘of the Case.

_In the ensuing four weeks after Muscat’s $16.00 per

share, offer, three substantial members of the business

community presented offers ranging between $18.00 and

22.00 per share for the A. S. P. stock; subject to varying

conditions. 18A,19A, 20A, 124A-127A, The offer at $22.00

. per share was particularly disadvantageous because it was

coupled with a number of completely unacceptable condi-

j tions, including (1) the payment of an alleged debt from

Wright Machine: Corporation (‘‘Wright’’) to A. S. P.,

which debt was virtually uncollectible (244A, 362A-363A) ;

_ (2) a minimal cash deposit with the balance payable in

installments (see 126A); and (3) an audit of A. S. y

36A-37A, 126A. !

Having reviewed and considered the views of the busi-

ness eommunity concerning prices and terms for the pur-

chase of the. S. P. stock, the Receiver concluded that

the offer of the Seagrave Corporation (‘‘Seagrave’’) was

i the most favorable because its offering price of $20.24 per

share was the highest unconditional cash offer made for

the stock. The Seagrave offer was an immediate 100%

eash offer, not requiring an audit of A. S. P. nor any repre- —

sentations or warranties or the like to be made by the Re-

ceiver or B. S. F. concerning the condyion or worth of

A. S. P. 124A-125A, 126A-129A.

Seagrave, however, did. insist upon a ¢utoff date of

December 21, 1968 for approval of the contract by ‘the.

District Court. 52A, 57A, 60A, 204A-206A. Through hard

bargaining the Receiver was able to persuade Seagrave to

extend the cutoff date to-Deeember 24, 1968. 52A, 204A-

206A. ; * |

The contract with Seagrav

Working assiduously, even with an intervening weekend,

the Receiver by December 10, 1968 assembled and-prepared

as signed on December

5, 1968. The Seagrave contract was expressly conditioned —

on approval by the District Court. 24A-34A, -124A-129A.

<—

Statement of the Case Noe 7

the necessary papers for submission :of the ‘offer to the

District Court. The Court thereupon ordered the hearing

set down for December 20, 1968 with immediate notice of

the offer and the hearing going to all interested, persons,

including the parties.to the litigation, all B. S. F. stock-

holders and the Securities and Exchange Commission. 11A-

37A, 38A,42A. The offer was also announced in. the

financial press. 371A, 80A, 321A. panies ,

On December 13, 1968 the petitioners moved the Dis-

trict Court to continue the December’ 20 hearing. 42A-

43A. After full oral argument the Court denied the ‘con- °

tinuaitce because, obviously, to grant it would have meant

the end of the Seagrave offer and would have mooted the

purpose of having a hearing. 44A-71A. Had the peti-

tioners had their way, the District Court would not have

even availed itself of an opportunity: to yer. aa the

Seagrave offer.

At the hearing before the District Court a substantial

amount of evidence was adducéd concer ning the value of

the A. S. P. stock. Earnings for 1967 and-1968 were ap-

proximately $2.00 per share. 175A, 232A. The. Receiver

used a multiplier of 10 to capitalize these earnings and the

petitioners offered no contrary evidence. 177A-178A, 180A-

181A. Indeed, A. S. P.’s earnings for the ten years prior

-to the hearing averaged just under $2.00 per share ($1.92

per share) and in only two years out of the ten (1965 and

' 1966) were earnings much in excess of $2.00 per share.

376A. The market price for A. S. P. stock was a relatively

insignificant factor beaause trading was very thin and open

market trading did not reflect the control value of the entire

block of A. S. P. stock owned by B.S. F. 173A-174A. The

market price prior to the hearing was approximately $16.00

per share. 173A.

A. 8. P. had not paid dividends in the past and had no

prospects of paying dividends in the foreseeable future.

y aad

8 Statement of the Case

°

98A-99A. In fact, B.S. FJ had never received a penny from

its $3,000,000 investment in A. S. P. stock. 98A-99A. Book

value, based upon the most recent audited statements of

A. S. P., with adjustments for indisputably soft items on

~the balance sheet, was approximately $20.00 per share.

166A-167A, 24BA-244A, 362A-363A, 373A, 370A. :

Of serious concern to the Receiver and the District

' Court was the evidence offered ,of existing and potential

depreciation in the value of the A. S. P. stock. As noted,

earnings in 1967 and 1968 were considerably lower than the

historical highs in 1965 and 1966. A $1,200,000 bank loan

had recently been called (249A) and A. S. P.’s inventory

and accounts receivable were factored at high interest

rates. 249A-250A. Cash w as” almost non-existent (250A)

and both production and sales had slowed down because of

the cash shortage. 250A-251A. Moreover, the Receiver had

_ ample reason to believe that Muscat’s continuing interven-

tion in@A. S. P.’s affairs could only lessen the company’s

pr ospects for rehabilitation. 116A-117A, 177A, 252A-253A.

In the light of the substantial body of information con-

cerning A. S. P.’s worth and prespects developed at the

_ hearing, both the Distri ict Court and the Court of Appeals

concluded that the itnportance: of an independent appraisal, .

which undoubtedly would have Been time consuming and

costly (and, of course, B.S. F. had little time and no cash)

was ‘‘outweighed by the other evidence tending to show

that the best price under the circumstances was obteines|

for the stock.’’ PA4. , It is also noteworthy. that the three

bids on December 23, 1968 (see infra); each independent

of the others, differed by only $15,000 oe an aggre-

gate amount of over $3,500,000 was involved... 331A-332A.

- Moreover, the petitioners, both in the District C ‘ourt and

in the Court:of Appeals, ‘failed to articulate ‘ta. formula

which shows that the price received does not represent the -

~

Pa

f

fa. a

°

—

Statement of the Case - 9

fair value of the stoek: This is particularly significant here

since Victor Muscat ,was the’ dominant foree in the cor-

‘poration whose shares were being sold and thus was in a

+.

position to testify as to value.’’ PA4.

At the outset of the heari ing on December 20, 1968, the

District Court expressed its willingness to entertain‘ other

bids (72A-75A, 79A, 136A-137A, 162A, 195A) ‘and, indeed,

other bids were forthcoming during the course of the hear-

ing. 78A-79A, 331A-332A. The hearing was ‘continued, to

.. December 23, 1968, for the purpose of receiving. additional -

bids. At-this hearing another bid was received from Sea-

grave for $3,540,000 (331A); from Victor Metal Products

Corporation (‘Victor Metal’’) for $3,555,000 (331A- 332A ),

conditioned, however, upon the approval of the Securities -

and Exchange Commission (see &fra), and from Morgan-

Glickman for $3,550,000 (approximately $24.27 per share)

(331A) without conditions, which latter bid was eventually

approved by the District’Court as the highest unconditional

bid that was made for the A. S. P: stock. 332A-333A, 336A.

During the bidding Seagrave and Morgan-Glickman_re-

fused ty extend the cutoff date beyond December 24, 1968.

204.A- 209A, 212A-213A, 216A-221A, 311A, 317A, 318A.

' As stated above, the Victor Metal bid was conditioned

upon the approval of the Securities and Exchange Commis-

sion. 213A-214A; 291A. Victor Metal is owned by a Trust

of which Muscat is the: -beneficiary (213A) and his involve-

ment with Victor Metal: was thesbasic reason why its-bid

was so conditioned. "213A-214A, 291A. Whether the Com-

mission would ever approve the arrangement and how long.

it might have taken to receive such approval were matters

of conjecture. 306A-307A.

_ In any event, it is clear that the Victor Metal bid was

to al] intents and purposes, Muscat’s bid and it is note- °

worthy that this bid was only $5,000 higher than the un-

‘ 10 Statement of the ‘Case

conditional Morell: Glickman bid (only $15,000 0 separated

all the December 23, 1968 bids). The pained outcries ‘of

Muscat’s controlled companies about purported unfairness ~

in the proceedings below come with poor grace in the light

lof Muscat’s actions before and at the District Court hear-

|

[

-~» do not reflect in the slightest the plight of ‘B.S. F., the peril

| ing. With Museat an unsuccesful bidder for the A. S. P.

stock and facing the loss,of his substantial personal emolu-

below and the petition to this Court reflect, more than, any-

thing else, his disappointment in the outcome of the sale.

Certainly, the appeal below ard the petition to this Court

hanging over the investment of B. S. F.’s ‘iiblic stock-

holders, the time limitations confronting the Receiver, the

scrupulous attention-to due process which characterized the

proceedings below, and the absolute fairness of the Morgan-

Glickman bid measured by any valuation formula.

+.

ments from A. S. P., it can well be said that the appeal —

°

“Argument Rare ‘Ee

ARGUMENT.

The petitioners’ entire. argument in this Court is’ -

premised upon procedural matters, embellished with flower ¥

statements to the effect. that, allegedly vel questions of ’.

procedure deserve review by this Court, that due process.

rights were violated below and that the judicial process was

abused. , The fact is that when the petitioners’, argument -

is shord of these strained generalities, it. is. self-evident

that. their complaint here is grounded: upon one cireum-

stance only—the petitioners’ chagrin that. the District -

Court did exactly what Congress authorized the Federal

Courts to do under 28 U. S.'C., Section 2004. |

28 U.S. C., Section 2004 expressly, unequivocally and

| ‘mambiguously sales the Federal Courts to.order the

holding of a judicial sale of personalty (as was the case

here) apart from the procedures set forth in 28 UU. S. C.,

* Section 2001 which governs realty sales. Congress has

maintained this distinction between sales of. personalty

and sales of real estate since at least 1893 when the prede- —

cessors to. Sections 2001 and 2004 were enacted. Yazoo v.

MV. R. Co. v. City of Clarksdale, 257 U. S. 10, 42 S. Ct.

27, 66 L. Ed. 104 (1921).: Indeed, although Congress ‘in

1934 significantly amende the provisions dealing with-sales

of realty to permit private as well as public sales thereof,

no substantive change was made in the provisions govern-

ing sales of personalty. See Chase Nat. Bank. of City of ©

New York v. Pan American Pet. Oo D.C. i D. Cal, 1934,

9 F. Supp. 394, |

Pursuant to the mandate found in “Section 2004, ves :

sale,of the A. S. P. shares was not conducted as if the

shares were real property. This was done not yout of

: whimsy, caprice or indifference to substantive rights ; it

was doné becaus¢é exigencies of economies and time’ mili-

/ tated against any unnecessary delay and, even more criti-

f

& "

. *

2 <

@ ¢

12 Argument ;

cally, against jeopardizing the welfare of B. S..F. and its

stockholders by subjecting them te risk and ‘speculation,

.the necessary asec ate of the petitioners’ conteritions.

See District Court’s comments at 325A. ~

‘The record herein demonstrates that compelling facts

prompted the District Court to exercise the discretion ex-

pressly granted by Congress to conduct the sale of the

A. 8. P. shares apart from the procedures which obtain

in sales of realty. Those>facts are summarized in the

_ Respondents’ Statement of the Case, supra, and in the

opinion-of the Court of Appeals (PA1-4). and need not be

__ repeated here.” Suffice it to say that ‘the Court of Appeals

applied the provisions of Section 2004 to those - facts

(something which petitioners are understandably reluctant —

to do) and found that ‘‘the district court was justified in’

expediting the hearing in this case primarily because of

the financial condition of the corporation and the deadline

fixed. by the offeror.’’ PA4.

In applying Section 2004, the Court of Appeals di a

not, as the petitioners contend, construe .the statute to

grant ‘‘unlimited discretion” to the Distréet Courts to de-

part from Section 1 procedures. P8. Quite to the

contrary, the Court/ of Appeals ruled that Section 2001

**does express a pfeferential course to_be followed in con-

“nection with a court authorized sale of property and that

the district court should not order otherwise except under

_ extraordinary circumstances.’’ PA4. Thus, the Court of

“Appeals enunciated a standard for conducting sales of

personalty which is not only consistent with the entire °

statutory structure but also achieves a required measure

of flexibility (explicit in the legislation in question) when, —

as in the case at Bar, extraordinary circumstances arise

calling for expeditious handling of a sale of personalty,

which is exactly what confronted the District Court in this

ease. Sa Ale

e - ud : _— > ee |

Argument 1B

The Court of Appeals also ruled that if extraordinary

cireumstances exist and a sale of personalty is conducted

apart froni the procedures set forth in Section 2001, appel- 3

late review of the District Court’s decision is still measured

‘by the traditional abuse of discretion test. It is the latter

ruling which the petitioners most oppose, although their

argumerit is devoid of any sound reasons why the abuse of

. discretion test should be cast aside in the case of judicial

sales. “ Mee ee |

While the petitioners contend that the limits of the

Federal Courts’ discretion under Section 2004 is a first im-

pression ‘*question’’ (P7), it is obvious that their so-called ° \

‘‘question’’ is not a qtestion at all, ‘but rather a call for

judicial legislation Which, contrary to the clear language of

the statute, would confine sales of personalty to minor

deviations from the procedure set forth in Section 2001, un-

less a ‘market value’’ for the personafty in question exists, _

which the petitioners sometimes describe as a ‘‘reliable’’

market value and at other times as an ‘‘ascertainable”’

market value, without ever defining what those terms might

mean. And the petitioners’ proposed drastic, rigid and, of

course, non-statutory limitations upon a sale of personalty

must be followed—according to the petitioners—irrespec-

tive of compelling circumstances such as need, time limita-

tions, risks, business fluctuations and the like. Obviously,

to state the’ petitioners’ position is sufficient to refute it.

~ The petitioners made an identical demand for judicial

__«, legislation before the Court of Appeals, but that ‘Court,

} & *: quite rightly, refused to pervert its own jurisdiction and

™~ ».the clear Congressional mandate found in Section 2004. -

*, -\In so doing, the Court of Appeals not only properly inter-

preted the statute, but also followed numerous rulings of

this Court and Court of Appeals’ decisions standing for .

the proposition that the District Seurts 1 may, indeed, exer-

a

°

°

14 | Argument

o

cise discretion in conducting judicial sales and, particularly,

sales. of ‘personalty. In Yazoo, supra, this Court said in

discussing the place where a sale is conducted: ‘‘The second

section, however, while it directs that personalty shall be

sold as provided in the realty section, vests full discretion

- in the Court to sell it elsewhere.’’ (Emphasis added.) In

Stokes v. Williams, 3 Cir. 1915, 226 F. 148, cert. den. 241

U. S. 681, 36 S. Ct. 728, 60 L. Ed.’ 1234, the abuse of dis-

cretion test was applied in reviewing a District Court sale

although (1) it was a private sale; (2) there was no refer-

ence to,a special master; (3) there was no public notice of

the sale, by advertisement or otherwise ; and (4) notice was

only given to the parties and creditors. and stockholders

of the corporation in receivership. Stokes v. Williams,

supra, has been cited with approval on many occasions; to

cite as examples only a few of the Court of Appeals deci-

sions apposite to Stokes, see Interstate Oil Co. v. Gormley,

9 Cir,, 1939, 105 F. 2d 431, 434, cert. den. 308 U. S. 626, 60

S. Ct. 383, 84 L. Ed. 522, reh. den. 309 U. S. 694, 60 S. Ct.

512, 84 L. Ed. 1035; Backus v. Jaffray, 8 Cir., 1934, 73 F. 2d

823; Smith v. Hill, 3 Cir., 1925, 5 F. 2d 188; and Cockstetter’

wv. Williams, 9 Cir., 1925, 9 F. 2d 354. See also Pewabic

Mining Co, v. Mason, 145 U.S. 349, 12 S. Ct. 887, 36 L. Ed.

732, 734. . °

: Sin short, the Petition herein does not present a novel

“question of federal procedure or statutory construction.

Irideed, it may well be said that the proceedings below ex-

emplify the exercise of sound judicial discretion which Con-

gress has seen fit to leave to the Federal Courts in the field

of judicial sales of personalty; if only because mechanics

must often be shaped by facts and equities which rigid and

inflexible procedures may* destroy. Compare sales under —

the National Bank Act, 12 U: S. C. Section 192.

~

Argument — 7 - 15

Moreover, it is ‘hardly likely that ‘‘the integrity ‘of

federal judicial sales will be jeopardized by allowing the

. dgcision below to stand’’, as the petitioners advocate. P38.

The Court of Appeals has ruled that only ‘extraordinary

circumstances’’ will warrant departure from Section 2001

procedures. It will be a rare litigant, indeed, unless faced

with B. S. F.’s dire financial problems and time limitations,

who will be able to meet that severe burden.

Having said the above, it is evident that the petitionérs’

argument that the procedure below was violative of due

process and constituted an improper departure from the:

accepted course of judicial proceedings borders. on the

frivolous. The Receiver received a fair; reasonable, totally

arm’s length offer for the A. 8. P. stock; he presented the

offer to the District Court; notice was given to all inter-

ested persons, including the parties, all B. S. F. stockholders

~~and the Securities and Exchange Commission; ‘a full hear-

ing was held -to consider the offer; the Distriet Court ex-

pressed its willingness to entertain additional bids and did

so; and the District Court ultimately approved the highest

unebinditional bid for the stock. It is, clear that the require-

ments of due process were meticulously. observed in the

proceedings below and that a rational, thoughtful and judi-

cious decision was handed down, consonant with the needs

of B.S. F. and its stockholders, after careful consideration

of the evidence and the views of all interested persens.

Compare McRaney v. Riley, 91 So. 399, 128 Miss. 665, 22

A. L. R. 685, cert. den. 260 U. S. 727, 43 S. Ct. 90, 67 L. Ed.

484 (under the Bankruptcy Act).

One final reason should be notéd why the decision be-

low does not warrant review. on certiorari. The Receiver

said below that B.S. F.’s very survival may well depend

upon the outcome of the appeal to the Court of Appeals... .

_ B.S. F. desperately needed then and needs now the pro-

C

ree

16 ; Conclusion

e

ceeds of the instant sale to forestall the ruinous conse-

quences of foreclosure proceedings. Setting aside the sale

would be even more ominous to B. S. F. today because only

a few months remain before the debentures fall due. There

is absolutely no assurance that B.S. F. and its many public

stockholders, who are innocent of the blatant self-interest

whieh Muscat brings to these proceedings, will be able to

withstand the ravages of distress sales or the hazards of

unavailing efforts to raise ‘cash in the fleeting time which .

will be left. to the Receiver if Muscat, through the peti-

tioners, has his way. pee

CONCLUSION.

-For the foregoing reasons the Respondents respect-

fully submit. that the Petition for a Writ of Certiorari

shoutd be denied.

— >

/

Respectfully submitted, f

Invinc Morris, »

JosePpH A. RosENTHAL,

‘aa .- Counsel for Respondents. ~

. ¥

Couen, Morris anD RosENTHAL, —

Wilmington, Delaware,

Beyepict Wotr, ;

Paut L. Ross, , ,

Howarp L, Jacoss, .

Worr Porrer Ross Wotr & Jones,

New York, New York,

Of Counsel,

Pied

.

ws we

ax

» '

.

2 a S

.

. af se

/

/

e

.

oe —

eo.

2

@*

‘A .

aaa

“4

,

la

«