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In re Haupt

decided: June 2, 1967.


Moore and Hays, Circuit Judges, and Zavatt,*fn* District Judge.

Author: Zavatt

ZAVATT, District Judge:


This is a consolidated appeal by one of the creditors (the former landlord) of Ira Haupt & Co., a Limited Partnership, Bankrupt ("Haupt"), from three orders of the United States District Court for the Southern District of New York, dated respectively March 10, 1965, August 12, 1965 and September 15, 1965, two of which affirmed rulings of Edward J. Ryan, Referee in Bankruptcy, relating to the election and appointment of Charles Seligson, Esq., as Trustee in Bankruptcy of Haupt and one of which affirmed an order of the Referee quashing a subpoena, directed to Milbank, Tweed, Hadley & McCloy, attorneys for the New York Stock Exchange and The Chase Manhattan Bank, and dismissed the petition to review that order. The appellant contends that the district court erred in refusing to reverse the Referee's action in appointing and approving Charles Seligson, Esq., as Trustee, and refusing to declare its attorney, Samuel P. Adelman, Esq., the duly elected Trustee.

Approximately two and one-half years have elapsed since Charles Seligson, Esq., was elected Trustee and the order of his appointment was signed by the Referee on October 6, 1964. Mr. Seligson was the successful "candidate" out of a slate of three attorneys for whom 41 creditors, with filed claims aggregating approximately $22,500,000, voted. The votes of seven of the limited partners for Abraham Glickman, Esq., were nullified by the ruling of the Referee that the limited partners were disenfranchised by § 44(a) of the Act, 11 U.S.C. § 72(a).*fn1 The Referee's order was affirmed. In re Ira Haupt & Co., 234 F. Supp. 167 (S.D.N.Y. 1964), aff'd, 343 F.2d 726 (2d Cir. 1965). This ruling left Mr. Seligson and Mr. Adelman (the attorney for Haupt's former landlord, One Estate, Inc.) in contention.

Now Samuel P. Adelman, Esq., the other unsuccessful " candidate," as attorney for Haupt's former landlord (which had voted for Mr. Adelman), seeks a determination that he and not Mr. Seligson was duly elected by a majority in number and amount of the qualified creditors. There is nothing in the record or in the oral argument before this court to suggest that Mr. Seligson is incompetent or lacking in sound judgment; is not performing his duties as Trustee with due diligence; is not expediting the orderly liquidation of the bankrupt's estate or is otherwise ill-equipped for the task to which he was appointed; that the rights and interests of any creditor are being prejudiced by the performance of his duties as Trustee. The interim reports of the Trustee are not a part of the record on this appeal. Were they to contain anything to support any such contentions, one would have expected experienced counsel to have sought their inclusion in appellant's appendix and to have expatiated upon them on the argument of this appeal. In his brief, Mr. Adelman acknowledges that "this proceeding will continue for several more years before it can be finally closed." Yet he seems to complain that "Although the estate has been pending for over two years, it is far from being substantially liquidated." He accuses Mr. Seligson of a lack of diligence in investigating the proofs of claim of the Bank creditors which he attributes to "the fact that he owes his election to the participation of the Banks * * *." (The fact of the matter is that the Referee disenfranchised the Banks upon the same ground that he disenfranchised the limited partners. Mr. Seligson no more "owes his election to the participation of the Banks" than he does to the participation of the limited partners.)

Mr. Adelman recommends himself for the office of Trustee. Declaring him the winner, he argues, would be of benefit to the state; would result in "the replacement of an improperly appointed trustee by a properly appointed and independent trustee" who would "proceed with dispatch * * * in the best interests of the creditors of this estate." Nevertheless, in what appears to be reminiscent of campaign promises, if declared the duly elected Trustee, he "does not intend to replace the general counsel or special counsel heretofore retained by the trustee because they have all served some useful purpose." It should be noted that the Trustee heretofore retained the firm of Seligson & Morris as his general counsel; that the then attorneys for the limited partners moved before the Referee for an order requiring the Trustee to terminate the general retainer and hire other counsel; that the petition to review the Referee's denial of that motion was dismissed and the order of dismissal was affirmed. In re Ira Haupt & Co., 361 F.2d 164 (2d Cir. 1966). If declared the duly elected Trustee, therefore, he would retain Mr. Seligson's law firm as general counsel. Were Mr. Seligson ousted and Mr. Adelman declared the duly elected Trustee, Mr. Seligson could then participate actively and share in the fees of his firm as attorney for the Trustee. He, no doubt, would render all of the legal services and, presumably, Mr. Adelman would be satisfied to have as his general counsel one who, in his opinion, has been derelict in his duties as Trustee and has been biased in favor of the Bank creditors.

Behind the facade of protestation of deep concern for the creditors of Haupt (the New York Stock Exchange and the Banks account for $18,735,186 out of filed claims totaling $22,541,767.36), one can observe a defeated candidate seeking a recount in an election which may involve the prospect of a substantial fee to the successful candidate.

On November 25, 1963, five days after Haupt closed its doors, the Exchange and Haupt's creditor banks entered into an agreement with the general partners of Haupt, the underlying purpose of which was to provide for the orderly liquidation of Haupt under the supervision of a liquidator. Pursuant thereto the Exchange advanced $9,500,000 from which to pay Haupt's customer creditors; the Banks agreed to defer their claims against Haupt to the extent of two dollars for every dollar advanced by the Exchange; a committee, on which the Exchange and the Banks were equally represented, was appointed; James P. Mahoney, Chief Examiner of the Exchange, was named liquidator; Morton Kamerman, a general partner and sole managing partner of Haupt, was engaged by the liquidator to assist him in the liquidation. All but 150 to 200 of the customer accounts having been liquidated satisfactorily and Mr. Mahoney's expertise being no longer required, the agreement was supplemented on March 10, 1964, so as to provide, inter alia, for the appointment of Edward Feldman, Mahoney's successor.*fn2

When the Referee dismissed the Chapter XI petition of the limited partners on July 26, 1964, he adjudicated Haupt a Bankrupt and held that Edward Feldman, who had been nominated as trustee in the arrangement proceeding, was not qualified to be the trustee because of his connection with Haupt. At the adjourned first meeting of creditors, held September 11, 1964, the creditors cast their votes for a trustee as follows:

Number of creditors Amount of claims Cast for

30 Banks, $19,118,549.06 Charles Seligson (an

New York Stock Ex- attorney)

change, brokerage

houses, nine employ-

ees of Haupt.

(The claims of the

nine employees to-

taled $153,944.25.

The claims ...

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