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    United States Court of Appeals, Fifth Circuit

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    1) Caltronics obtained a $55,044 judgment against First Research, who then assigned its interest in Palm Telephone stock to Caltronics to avoid execution of the judgment. 2) First Research and Palm Telephone later filed for bankruptcy under Chapter X and XI. Caltronics contested the sufficiency of Palm Telephone's Chapter X petition, claiming standing as the legal or beneficial owner of the stock. 3) The district court ruled that Caltronics had standing to contest the petition, regardless of whether the stock transfer created a security interest or ownership, as the transfer gave Caltronics a legal interest. The court did not determine the question of actual stock ownership.

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    United States Court of Appeals, Fifth Circuit

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    1) Caltronics obtained a $55,044 judgment against First Research, who then assigned its interest in Palm Telephone stock to Caltronics to avoid execution of the judgment. 2) First Research and Palm Telephone later filed for bankruptcy under Chapter X and XI. Caltronics contested the sufficiency of Palm Telephone's Chapter X petition, claiming standing as the legal or beneficial owner of the stock. 3) The district court ruled that Caltronics had standing to contest the petition, regardless of whether the stock transfer created a security interest or ownership, as the transfer gave Caltronics a legal interest. The court did not determine the question of actual stock ownership.

    Original Description:

    Filed: 1971-05-18 Precedential Status: Precedential Citations: 442 F.2d 1312 Docket: 30797

    Original Title

    In the Matter of First Research Corporation, Debtor, Palm Telephone Service, Inc., Debtor. Robert P. Foreman, as Trustee of the Estate of First Research Corporation, Debtor v. Caltronics, Inc., 442 F.2d 1312, 1st Cir. (1971)

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    1) Caltronics obtained a $55,044 judgment against First Research, who then assigned its interest in Palm Telephone stock to Caltronics to avoid execution of the judgment. 2) First Research and Palm Telephone later filed for bankruptcy under Chapter X and XI. Caltronics contested the sufficiency of Palm Telephone's Chapter X petition, claiming standing as the legal or beneficial owner of the stock. 3) The district court ruled that Caltronics had standing to contest the petition, regardless of whether the stock transfer created a security interest or ownership, as the transfer gave Caltronics a legal interest. The court did not determine the question of actual stock ownership.

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    United States Court of Appeals, Fifth Circuit

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    1) Caltronics obtained a $55,044 judgment against First Research, who then assigned its interest in Palm Telephone stock to Caltronics to avoid execution of the judgment. 2) First Research and Palm Telephone later filed for bankruptcy under Chapter X and XI. Caltronics contested the sufficiency of Palm Telephone's Chapter X petition, claiming standing as the legal or beneficial owner of the stock. 3) The district court ruled that Caltronics had standing to contest the petition, regardless of whether the stock transfer created a security interest or ownership, as the transfer gave Caltronics a legal interest. The court did not determine the question of actual stock ownership.

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    of 4

    442 F.

    2d 1312

    In the Matter of FIRST RESEARCH CORPORATION et al.,


    Debtor,
    Palm Telephone Service, Inc., Debtor.
    Robert P. FOREMAN, as Trustee of the Estate of First
    Research Corporation, Debtor, et al., Plaintiffs-Appellants,
    v.
    CALTRONICS, INC., Defendant-Appellee.
    No. 30797.

    United States Court of Appeals, Fifth Circuit.


    May 18, 1971.

    John H. Gunn, Phillip Schiff, Ira Abrams, C. Peter Buhler, Gunn &
    Venney and William Dawes, Miami, Fla., for debtors-appellants.
    Akerman, Senterfitt, Eidson, Mesmer, Robbinson & Wharton, Thomas T.
    Ross, Orlando, Fla., Palmer & Lazar, Bruce E. Lazar, Miami, Fla., for
    defendant-appellee.
    Before WISDOM, BELL, and AINSWORTH, Circuit Judges.
    WISDOM, Circuit Judge:

    Robert P. Foreman, trustee, and First Research Corporation and Palm


    Telephone Service, Inc., debtors, appeal from an order of the district court
    sustaining the exceptions of Caltronics, Inc., to a special master's report
    denying Caltronics standing to contest a Chapter X reorganization petition filed
    by Palm Telephone. We affirm and remand the case to the district court for
    further proceedings consistent with this opinion.

    The controversy began on November 11, 1969, when Caltronics obtained a


    judgment against First Research in the amount of $55,044.19. At the time, First
    Research apparently did not have enough ready cash or other liquid assets to
    satisfy the judgment. Therefore, to keep Caltronics from executing its
    judgment, First Research agreed to assign to Caltronics its interest in the stock

    of Palm Telephone, as well as its interests in certain other corporations. The


    assignment was made with an option in First Research to redeem the assigned
    stock if it paid the judgment owing to Caltronics within 45 days. If the
    judgment were not paid in 45 days, First Research apparently would lose all
    right, title, and interest in the Palm Telephone stock.
    3

    On December 30, 1969, George J. Waas, Secretary-Treasurer of First Research,


    prepared the assignment, had it signed by First Research's Executive VicePresident, and forwarded it to Caltonics. The document, however, failed to
    include the Palm Telephone stock. Following Caltronics' threat to execute its
    judgment, Waas prepared and addendum to the original assignment, which
    included in the assignment 185,133 shares of Palm Telephone stock.

    First Research then filed in a federal district court a Chapter XI petition for
    arrangement; on March 2, 1970, however, First Research amended its petition
    to apply for a Chapter X reorganization. Shortly thereafter, Palm Telephone
    filed a separate Chapter X petition. The court ordered the petitions consolidated
    and appointed Foreman, the First Research trustee, as trustee for Palm
    Telephone.

    Caltronics filed an answer to the petition of Palm Telephone asserting some


    nine objections. In addition Caltronics alleged that it had standing to answer
    and contest the Palm Telephone petition by virtue of its legal or beneficial
    interest in the majority block of Palm Telephone stock.

    The court referred the case to a special master. Following a hearing, the special
    master concluded that Caltronics had "no standing under 137 of the
    Bankruptcy Act to challenge the Chapter X Petition filed on behalf of" Palm
    Telephone and recommended that Caltronics' answer therefore be dismissed.
    Caltronics then filed with the court its exceptions to the special master's report.

    The court sustained Caltronics' exceptions, stating:

    Upon consideration, this Court finds, that, regardless of the 45 day provision in
    the written contract between First Research and Caltronics, Caltronics, as of the
    date of filing of the Chapter XI petition, had standing to challenge the
    sufficiency of the Chapter X petition. There was a legally effective transfer of
    the ownership of the Palm Telephone stock from First Research to Caltronics.
    Caltronics had actual ownership of the subject stock as of February 10, 1970. *
    * * Therefore, it is

    ORDERED and ADJUDGED that Caltronics' exceptions to the Master's Report


    are sustained in reference to Caltronics' standing to challenge the Chapter X
    petition.

    10

    The court then sent the case back to the special master to consider the
    challenges raised by Caltronics to the sufficiency of Palm Telephone's Chapter
    X petition.

    11

    Foreman, the trustee, and First Research and Palm Telephone, the debtors, have
    appealed from the court's order, which they construe as having decided in favor
    of Caltronics the issue of the ownership of the Palm Telephone stock. On
    appeal therefore they argue that the assignment of the Palm Telephone stock
    created merely a security interest and that Caltronics had not taken the steps
    required under Florida law to convert its security interest into an ownership
    interest. Alternatively, the appellants contend that if the assignment was not a
    security device but did transfer ownership, it was voidable as a preferential
    transfer under 60 of the Bankruptcy Act and the laws of Florida.

    12

    The appellants have misconceived the issue before the Court. The issue is not
    whether there was a preferential transfer in violation of 60 and 70 of the
    Bankruptcy Act, but whether the district court correctly ruled that Caltronics
    had standing to contest the filing of a Chapter X petition by Palm Telephone. In
    its order, in part set out above, the district court held only that for purposes of
    standing there had been an effective transfer of the Palm Telephone stock from
    First Research to Caltronics. The court did not decide whether the parties
    intended to create a security interest or that the transfer was not a voidable
    preference. The court merely held that whatever interest was created by the
    transfer security or legal or beneficial ownership that interest gave
    Caltronics the right to come into the Bankruptcy court and contest Palm
    Telephone's Chapter X petition. We agree and affirm the judgment of the
    district court.

    13

    In taking this view of the district court's holding we are in the happy position of
    being able to satisfy for the moment at least all the parties. In its brief
    and oral argument, and by letter to the Court, Caltronics has itself consistently
    maintained that the district court meant to hold only that Caltronics had
    standing to object to Palm Telephone's petition. On this appeal Caltronics asked
    the Court to affirm that holding. This we have done. Moreover, on oral
    argument the appellants themselves appeared to have been persuaded of the
    correctness of our view. That is of course because our holding leaves them now
    free to institute plenary proceedings under the appropriate sections of the

    Bankruptcy Act and the laws of Florida to adjudicate the question of ownership
    of the Palm Telephone stock.
    14

    Since there is nothing further for us to decide at this time, we remand the case
    to the district court for further proceedings consistent with this opinion.
    Presumably this means that the special master will now consider Caltronics'
    objections to the sufficiency of the Palm Telephone petition.

    15

    Affirmed and remanded with instructions.

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