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Ferguson v. Bucks County Farms Inc.

decided: July 7, 1960.

MURRAY FERGUSON, TRUSTEE UNDER CHAPTER X PROCEEDING FOR EQUITABLE PLAN COMPANY, DEBTOR,
v.
BUCKS COUNTY FARMS, INC., APPELLANT.



Author: Kalodner

Before McLAUGHLIN, KALODNER and HASTIE, Circuit Judges.

KALODNER, Circuit Judge.

In a plenary action by a Chapter X trustee seeking equity receivership and injunctive relief against the bankrupt's debtor must there be compliance with the provision of Rule 65(c) of the Federal Rules of Civil Procedure, 28 U.S.C. requiring an injunction bond on the issuance of a preliminary injunction?

This interesting issue is presented by this appeal from the District Court's issuance of a preliminary injunction without requiring filing of an injunction bond. Additional issues, relating to the District Court's appointment of a receiver, are also presented.

The critical facts may be summarized as follows:

The defendant, Bucks County Farms, Inc. is a Delaware corporation, registered to do business in Pennsylvania. Its sole business is the rental of eleven farm-like estates or manors for residential use. Of these eleven estates, which contain approximately 800 acres in Bucks County, Pennsylvania, nine were rented during the period here involved and produced a gross monthly rental of between $1,000 and $2,000.*fn1

On October 31, 1956, Bucks County Farms, Inc. executed a promissory note in the sum of $150,000 with interest at the rate of 10 per cent per annum payable on April 30, 1958, to the order of the Equitable Plan Company ("Equitable"), a California industrial loan corporation.

On May 29, 1958, Murray Ferguson, plaintiff, was appointed a Trustee for Equitable in a Chapter X Reorganization Proceeding in the District Court for the Southern District of California.*fn2 By an order of that Court dated September 10, 1959, Ferguson was authorized to institute legal proceedings against Bucks County Farms, Inc. in order to recover funds allegedly due and owing to Equitable.

On September 17, 1959, plaintiff filed a complaint alleging that Bucks County Farms, Inc. owed Equitable the principal sum of $150,000 plus $39,489.30 in accumulated interest. The complaint demanded a judgment in the sum of $189,489.30 and a writ of foreign attachment on defendant's real estate and other assets. The complaint also prayed for a temporary restraining order and, after hearing, a preliminary injunction against the transfer of any of defendant's real estate.

On the same day, a writ of foreign attachment was issued and in due course was served. On the next day, the requested temporary restraining order was entered. The order also fixed September 28, 1959 as the date for a hearing on the application for a temporary injunction. On September 19, 1959 a copy of this order was served on the defendant's assistant secretary, Jonathan Dunn, an attorney.*fn3

At the September 28th hearing defendant was represented by Albert Steinberg, an attorney who had been engaged on the previous day, a Sunday. He informed the District Court that "prominent counsel in Philadelphia" had withdrawn from the case on Saturday. It was not stated when the first attorney had been retained. Steinberg moved for a continuance in order to become more familiar with the facts. It was denied and the hearing proceeded during the balance of the day. At a continued hearing at 2 P.M. the next day defendant's present counsel again sought a continuance which was denied.

At the end of the first day of hearing, plaintiff moved for the appointment of receivers. At the conclusion of the second day of hearing the District Court indicated that a preliminary injunction would be issued and receivers appointed and an order to such effect was entered the following day, September 30, 1959.

On October 2, 1959, defendant filed notice to reconsider the issuance of the preliminary injunction and the appointment of receivers. Defendant also moved to stay the injunction and the appointment of receivers until security was posted to protect the defendant from costs and damages resulting from the injunction and receivership. These motions were denied.

Another hearing was held on October 26, 1959 to afford defendant opportunity to present further testimony. The defendant presented no testimony but requested a hearing de novo on the grounds that it had not received notice of a request for the appointment of receivers until the end of the first day of the original hearing and consequently had been prejudiced in not being able to properly present its case until the bulk of the testimony had been received. Defendant also claimed prejudice from introduction of hearsay evidence and evidence which was irrelevant to the issue of a receivership. The District Court denied the request for a de novo hearing.

This appeal is from the orders of the District Court (a) granting a preliminary injunction prohibiting the transfer of any of the assets of the defendant; (b) appointing receivers; (c) refusing to reconsider the appointment of receivers; and (d) refusing to stay the preliminary injunction and the appointment of receivers until a bond was posted to protect the defendant from damages resulting from the preliminary injunction and the appointment of receivers.

Defendant contends that the District Court was guilty of a prejudicial abuse of discretion in not granting its request for a continuance at the time of the original hearing and as a consequence there should be a reversal of its orders granting the preliminary injunction and appointing receivers. Plaintiff, on the other hand, contends that under the circumstances there was no abuse of discretion.

We subscribe to plaintiff's view. Defendant concedes in its brief that "The granting of a continuance is a matter within the sound discretion of the trial court. This discretion is broad and will not be disturbed unless it is plainly abused." Although it is clear that defendant's counsel on the first day of the hearing, and its substituted counsel the next day, each had but a portion of one day to prepare for the hearing, it is equally clear that defendant had been served with notice of the hearing 10 days before it took place.There is nothing in the record to indicate the date on which defendant first sought to employ counsel. Indeed, there is testimony that Dunn, upon whom service was made, was instructed by the president of defendant's parent company "to do nothing" with respect to these proceedings. Furthermore, Dunn was present at the hearing.

The District Court also took steps which avoided any prejudice which may have resulted from the denial of a continuance. At the end of the first day of the hearing, the proceedings were adjourned until 2 P.M. of the following day, affording defendant opportunity to interview and procure witnesses.Approximately one month after the hearing, an additional hearing was held at which counsel for defendant was given opportunity to present further testimony but he did not do so. Defendant claims that the denial of a continuance denied it "a fair hearing and a full opportunity to defend itself" but the defendant points to no specific manner in which it was prejudiced. This situation is clearly different from Sutherland Paper Co. v. Grant Paper Box Co., 3 Cir., 1950, 183 F.2d 926, certiorari denied 340 U.S. 906, 71 S. Ct. 281, 95 L. Ed. 655 where the denial of a continuance prevented the defendant from preparing adequate technical experiments during a period of ill health of the person in charge of preparing the technical ...


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