reported to Senior District Judge John Morgan Davis that there was no basis for Botany's assertion that the court-approved sales might be voidable and stated that the time for a challenge to the legality of the sales had passed. (Record 395; Report of Special Master, dated November 12, 1974, at 6.) In an unappealed order, Judge Davis overruled Botany's objections to the Special Master's report; approved, adopted and confirmed the Report; and dismissed Botany's petition for reorganization under Chapter X as not having been filed in good faith. (Record 407; Order Confirming Report of Special Master, dated December 2, 1974.)
Botany had pledged the capital stock of Glenoit to the First National Bank of Boston ("the Bank") to secure loans aggregating more than $ 14,000,000.
On October 7, 1974, after a hearing upon notice to all creditors, the official Creditors' Committees and all previously interested persons, Judge Goldhaber authorized and directed Robb, as trustee, to sell the capital stock of Glenoit to Clarence Hafford, Inc., for $ 6,487,500, payable to the Bank, and $ 250,000, payable to Robb, as trustee, in exchange for a release of any claims which Botany had against Glenoit. At the October 7, 1974, hearing, Michael Daroff objected to the sale of the stock (Record 610; N.T. 1545) and stated, in his written objections to the sale, that: the purchase price of $ 6,737,500 was grossly inadequate; the management of Glenoit deliberately understated its assets, overstated its liabilities and minimized its profits from operations; and, the bankruptcy court should continue the hearing until an independent audit of Glenoit's books and records had been made, in order to provide the true worth of Glenoit to prospective bidders. (Record 569.) The bankruptcy court declined Daroff's request for a continuance, denied his objections and confirmed the sale of the Glenoit capital stock. (Record 615; N.T. 1550.) Michael Daroff petitioned the district court to review the bankruptcy court's order of confirmation of the sale, raising all of the issues in his appeal, including nondisclosure and the fraudulent understatement of assets,
that had been advanced in the bankruptcy court. On December 2, 1974, Judge Davis affirmed the order of confirmation and dismissed with prejudice Michael Daroff's appeal. (Record 596.) On December 31, 1974, Botany and Michael Daroff appealed to the United States Court of Appeals for the Third Circuit, again advancing all of the charges which were made before the bankruptcy and district courts. (Record 295; Opinion, dated July 13, 1976, at 9.) After a hearing on February 13, 1975, the Court of Appeals affirmed, without opinion, the order of the district court, and subsequently refused appellants' motion for reargument. On October 6, 1975, the United States Supreme Court denied appellants' petition for a writ of certiorari.
In this case, it is clear from the record before us that Judge Goldhaber was not clearly erroneous in his finding that Botany and Michael Daroff were barred by the doctrines of Res judicata and collateral estoppel from raising the issue of fraud in their application to remove and surcharge the late trustee. Appellants had pleaded, argued and litigated the issue of fraud, in connection with the sales of the capital stock of Mill Store, Baltimore and Glenoit, before the bankruptcy, district and appellate courts and, therefore, under the rule of collateral estoppel, they could not relitigate this same issue in the subsequent proceeding for Robb's removal and surcharge.
Further, Judge Goldhaber correctly held that allegations of impropriety or fraud underlying the sales of capital stock were barred by Res judicata because the orders of confirmation are valid, final judgments under Rules Bankr. Proc. Rule 803, 11 U.S.C. In view of the applicability of Res judicata and collateral estoppel, at the October, 1975, hearings concerning the application for the removal and surcharge of the late trustee, Judge Goldhaber properly refused admission of any evidence of alleged fraud with respect to the sales of the capital stock of Mill Store, Baltimore and Glenoit.
We turn next to the three remaining issues raised in this appeal. First, appellants argue that the bankruptcy court was compelled, under 18 U.S.C. § 3057,
to request the United States Attorney to investigate the applicants' allegations of fraud and to review those findings before rendering a final decision with respect to the application for Robb's removal and surcharge. This argument is clearly without merit. Judge Goldhaber had no duty, under 18 U.S.C. § 3057, to report to the United States Attorney all the facts and circumstances underlying the sales of the capital stock of Mill Store, Baltimore and Glenoit because he did not have reasonable grounds for believing that any violations of the bankruptcy laws had been committed, and because the same issue of fraud had been pleaded, argued and litigated before the bankruptcy, district and appellate courts.
Second, appellants argue that the bankruptcy court, in the exercise of its equitable powers, should have admitted into evidence testimony alleging fraud in the trustee's performance of his duties and should not have excluded such testimony on the grounds of Res judicata. This argument is also without merit. Judge Goldhaber, while specifically addressing the equitable powers of the bankruptcy court, found that the applicants' delay, until June 6, 1975, in seeking the removal and surcharge of Robb, constituted a "classic case of laches" and inexcusable delay which, even if there were merit to the charges, would estop the applicants from asserting them. Judge Goldhaber's findings of laches was not clearly erroneous, and it provided grounds, in addition to Res judicata and collateral estoppel, for the refusal of evidence alleging fraud in the sales confirmed ten to fourteen months earlier.
Third, counsel for the late trustee argues that the bankruptcy court, in the exercise of its equitable powers, should have assessed counsel fees of $ 20,000 against appellants because the application to remove and surcharge the trustee was "frivilous (Sic ), abusive, irresponsible, scandalous and an abuse of the legal processes of a federal court." Although Judge Goldhaber did find that the application and brief of Botany and Michael Daroff were vexatious, he did not find that they had been filed in bad faith. (Record 304; Opinion, dated July 13, 1976, at 18.) Because Judge Goldhaber's finding was not clearly erroneous, and because his denial of an award of counsel fees was not an abuse of discretion, we will not impose such fees upon the appellants.
In conclusion, upon a careful review of the entire record on appeal, consisting of over 1,000 pages of briefs, reports, transcripts, financial statements and other documents, we accept the findings of fact in Judge Goldhaber's July 13, 1976, opinion because we find that they are not clearly erroneous. Therefore, the July 13, 1976, order dismissing the application for the removal and surcharge of the late Max Robb as trustee for the bankrupts will be affirmed.
An appropriate Order will be entered.