Wynn v. Braunstein ( 1995 )

USCA1 Opinion

          February 24, 1995     [NOT FOR PUBLICATION]

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

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        No. 94-1448

                           IN RE WYNCO DISTRIBUTORS, INC.,

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                            HENRY B. WYNN AND ALBERT WYNN,

                                     Appellants,

                                          v.

                       JOSEPH BRAUNSTEIN, TRUSTEE IN BANKRUPTCY
                             OF WYNCO DISTRIBUTORS, INC.

                                      Appellee.


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                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                     [Hon. Joseph L. Tauro, U.S. District Judge]
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                               Torruella, Chief Judge,
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                            Bownes, Senior Circuit Judge,
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                             and and Cyr, Circuit Judge.
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             Richard H. Wynn for appellant Albert Wynn.
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             Henry B. Wynn on brief pro se.
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             Charles R. Bennett, Jr.,  with whom Isaac  H. Peres and Riemer  &
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        Braunstein were on brief for appellee.
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                    Per Curiam.   Appellants  challenge a  bankruptcy court
Per Curiam.
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          order,  affirmed on  intermediate appeal  to the  district court,

          authorizing the chapter 11 trustee to sell substantially  all the

          corporate  debtor's assets.   As  appellants neither  alleged nor

          established  cognizable  injury  from  the  challenged  order, we

          affirm the district court judgment. 

                    The present litigation has survived the demise of Wynco

          Distributors,  Inc. ("Wynco"  or  "debtor"),  a corporation  once

          closely held  by the Wynn family.   Paul, Henry, Albert and Irene

          Wynn were  beneficiaries of  the Wynn Family  Trust [hereinafter:

          "Family Trust"], the sole  shareholder in Wynco.  Paul  and Irene

          Wynn  served on the  Wynco board of  directors.  Paul,  Henry and

          Albert Wynn  were the  designated trustees  of the Family  Trust.

          Paul  alone was authorized to vote Family Trust shares in matters

          affecting Wynco.

                    On December 17, 1990, Henry and Albert Wynn, appellants

          in  the   present  action,  unsuccessfully  brought   suit  in  a

          Massachusetts  court  to relieve  Paul  Wynn  as a  trustee,  for

          alleged mental  incompetence.   Nevertheless, ten days  after the

          state superior  court ruled against  them, Henry and  Albert pur-

          portedly removed  Paul as a  trustee and installed  themselves as

          officers  and directors of Wynco.1   In response,  Paul and Irene

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               1Ultimately, the  superior court  concluded  that Henry  and
          Albert Wynn had no  authority to displace Paul  as a trustee  and
          that Paul possessed the  requisite authority under  Massachusetts
          law  to initiate these chapter 11 proceedings in behalf of Wynco.
          Wynn v.  Wynn, No. 90-03357 (Mass. Super.  Ct. 1990).  The Massa-
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          chusetts  Appeals Court  affirmed in  Wynn  v. Wynn,  No. 93-P-29
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          (Mass. App. Ct. 1994).

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          Wynn promptly filed  a chapter 11 petition in  behalf of Wynco in

          the  United   States  Bankruptcy   Court  for  the   District  of

          Massachusetts.

                    Henry  and Albert  correctly point  out on  appeal that

          they challenged the Wynco chapter  11 petition in the  bankruptcy

          court,  based on  their allegations  that Paul  was incompetent.2

          They also  insist, however, that Paul's  alleged incompetency was

          fraudulently  concealed from the bankruptcy court.  We can accord

          no weight to the latter contention  in light of the fact that the

          bankruptcy  court     though  by appellants'  own admission  well

          aware of their allegations of incompetency    elected to defer to

          the state court on the matter.   See supra p. 2.  There can  have
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          been no  actual concealment  of Paul's alleged  incompetency from

          the bankruptcy court, which was  apprised of the allegations  and

          appropriately elected to defer to the state court.  

                    The  sole  remaining issue,  to which  we now  turn, is

          whether appellants alleged  or established any cognizable  injury

          resulting  from the  challenged sale.   Eleven  months after  the

          chapter 11 petition was filed, no reorganization plan having been

          submitted,  the chapter  11 trustee  proposed to  sell the  Wynco

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               2The record  reflects that  the matter of  Paul's competency
          was raised at a  bankruptcy court hearing on the  debtor's motion
          to restrain and enjoin appellants from operating Wynco; in appel-
          lants' motion for leave to  appeal the bankruptcy court's  denial
          of their motion to dismiss the chapter 11 petition; and in appel-
          lants'  district court  appeal  from the  bankruptcy court  order
          authorizing the  sale of  Wynco's assets.   Significantly, though
          not  surprisingly in light of the record below, no allegations of
          fraud on the court were ever raised by appellants prior  to their
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          appeal  to the  district court  from  the bankruptcy  court order
          approving the sale of assets.  

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          business as a going concern, together with substantially all  its

          assets,  to Susan Wynn, Paul Wynn's daughter, for $100,000.3  The

          trustee projected  that the $100,000  in cash generated  from the

          sale to Susan  Wynn, together  with $164,000 in  cash already  on

          hand  and  the anticipated  proceeds  from  $210,000 in  accounts

          receivable retained  by the debtor estate, would enable all Wynco

          creditors  and  costs  of  administration (a  combined  total  of

          $395,000)  to be satisfied  in full.   Any surplus was  to be re-

          tained  to  cover  the  costs of  defending  against  appellants'

          challenges to the order of sale.

                    Appellants advanced four arguments in support  of their

          opposition to the  sale.  First, the sale  would be premature, as

          the  state court had not yet decided  who was entitled to control

          Wynco.   Second, the  purchaser was an insider.   Third, the pur-

          chaser chilled the sale,  deflating the purchase price.   Fourth,

          the proposed sale  would contravene  chapter 11  by permitting  a

          sale of going-concern assets  without the protections afforded by

          a  disclosure statement or a  plan of reorganization.   See Bank-
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          ruptcy Code    1106, 1121-25, 11 U.S.C.    1106, 1121-25 (1993). 

                    The bankruptcy court rejected these contentions for the

          following  reasons.  First, the case had been pending longer than

          most bankruptcy cases,  and awaiting a state court decision would

          necessitate further,  indefinite delay.  Second,  the purchaser's

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               3The  appraised  value  was  between  $69,000  and  $86,500.
          Excluded from  the sale were Wynco  accounts receivable predating
          the  October 1,  1991 sale  agreement, approximating  $210,000 in
          face  amount, which were to  be collected for  the benefit of the
          debtor estate either by the buyer or the trustee. 

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          "insider"  status had  been fully  disclosed.   Third, appellants

          failed to present competent evidence  (or to pursue discovery) in

          support of their allegation that the purchaser chilled  the sale.

          Fourth,  the court found that the chapter 11 trustee had complied

          with Bankruptcy Code   1106, 11 U.S.C.   1106.4    

                    Undeterred, appellants reiterate their contentions that

          the  chapter 11 proceedings amounted to a fraud on the bankruptcy

          court because Paul  Wynn was incompetent to initiate  the chapter

          11  proceedings  and  his  incompetency was  concealed  from  the

          bankruptcy  court  by Paul's  attorneys  and by  Susan  Wynn, the

          purchaser.   As  noted above,  see supra  p. 3,  their ostensible
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          concern for  the integrity of  the chapter  11 proceedings  rings

          hollow.  Furthermore,  appellants neither point  to error in  the
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          bankruptcy court rulings relating to the order of sale, see supra
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          pp. 4-5, nor allege  any cognizable injury sustained as  a conse-

          quence  of  the order  of sale.    Finally, absent  any developed

          argumentation as to  appellate standing, whatever potential  harm

          might conceivably  be visited  upon appellants as  minority Wynco

          shareholders is  too speculative to support  the required showing

          that appellants  are "aggrieved parties."  See  In re El San Juan
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          Hotel, 809 F.2d 151, 154 (1st Cir. 1987).
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               4In the latter regard,  the court found  that it was in  the
          best interests of creditors to continue to operate Wynco  pending
          sale, in order to  capitalize on its going-concern value,  rather
          than suspend business operations and liquidate the remnants under
          chapter  7.    Moreover, the  court  concluded  that the  trustee
          fulfilled his responsibility under  Bankruptcy Code   1106(5), 11
          U.S.C.    1106(5), by  indicating  his intention  to convert  the
          proceedings to chapter 7 upon consummation of the sale.  

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                    The  district  court  judgment is  affirmed;  costs  to
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          appellee.
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