MAGGIORE, Bankruptcy Judge
A trustee is not required to burden the bankrupt's estate with costs and expenses of litigating matter where there is no probable cause for believing a right of action exists. Thus, the trustee was not negligent for failing to pursue an action against a creditor who had withheld funds since there was a court order expressly authorizing such a deduction, there was no apparent cause of action against the creditor, and the trustee had no duty to pursue a frivolous law suit. See Sec. 70(a) at ¶ 2679 and Sec. 541(a) at ¶ 9501.
Former Bankruptcy Act — Title to Property — Trustee of the Estate — Receipt of Funds by Successor Trustee
Even though certain funds received by the trustee and former receiver were not delivered to the present equity receiver, the court ruled that this former receiver had title to the funds for all purposes vis-a-vis the intervenors class, and extended that determination to the present equity receiver. Hence, summary judgment was granted the former-trustee receiver. Further, interest earned on both assigned and unassigned accounts as a result of the former receiver's investment of amounts was properly not delivered to his successor pursuant to the court's former partial summary judgment, wherein the records of the debtor corporation were found to be in disarray or non-existent and therefore could not be reconstructed with sufficient accuracy to base a precise earned interest allocation. See Sec. 70(a) at ¶ 2679 and Sec. 541(a) at ¶ 9501.
[Digest of Opinion]
This case entailed a contested matter arising from various claims against the former trustee receiver. The Court had determined in prior proceedings that the trustee had title to both the notes and funds collected thereon for all purposes. Further, the court had determined that as a matter of law the trustee acted neither negligently nor wilfully and deliberately in violation of his duties.
The successor trustee receiver argued that $102,356.00 was withheld by a computer company and not delivered to the former trustee. The trustee responded in the following manner: (1) A court order expressly authorized such a deduction; (2) the funds were a collection and service fee contracted for by the computer company, the bankrupt, and the note makers; (3) the successor equity receiver was not a party to those agreements; (4) there was no apparent cause of action against the computer company; and (5) the former trustee had no duty to pursue a frivolous law-suit.
The court agreed with the former trustee in all respects. As stated in Stutts v. Waldrop, 377 F.2d 275 (5th Cir. 1967), "the trustee is not required to burden estate with costs and expenses of litigating matter where there is no probable cause for believing right of action exists."
Further, the successor trustee argues that $114,864.00 was received by the former trustee in the "manner indicated" and not delivered to the successor equity receiver in the following amounts:
(a) $26,127.00 collected by the former receiver on unassigned notes.
(b) $47,217.00 collected by the computer company on unassigned notes and paid to the former receiver;
(c) $41,520.00 interest received on assigned and unassigned notes and paid to the former receiver;
(d) $114,864.00 Total.
The former receiver responded that the $26,127.00 was collected pursuant to Section 70(a) of the Bankruptcy Act, and that the present trustee receiver did not have standing to assert a claim to the unassigned funds because only the intervenor's class have such standing. The court agreed in all respects with the former trustee.
He has further asserted that the $41,520.00 was interest earned on both assigned and unassigned accounts as a result of his investment of amounts collected during the pendency of the litigation on assigned funds. He has further argued that by a letter, the present trustee receiver authorized him to appropriate and expend this sum as costs of combined administration, i. e., justifiable reliance and estoppel. Again the court agreed with the former receiver, holding as noted in the court's partial summary judgment, that the records of the debtor-corporation were in disarray or non-existent. Thus, it was never possible to reconstruct them with sufficient accuracy to base a precise earned interest allocation.
The successor trustee receiver argued that all funds turned over by him to the former receiver were properly accounted for and that the former trustee's claims for surcharges and set-offs were unwarranted as shown by the accounting utilized and relied upon by both parties. The court agreed, and found that no genuine issue of material fact remained disputed on this issue.
Finally, the intervenors argued that the former trustee was negligent in the following manners: (1) that he commingled unassigned funds received from the present equity receiver with assigned funds; (2) that he failed to determine intervenors' rights by initiating suit before expending their funds and (3) that he used intervenors' funds, i. e., unassigned funds, to pay assignees of the assigned notes. The court found that the acts of the successor equity receiver were not in dispute, and that he was clearly entitled to prevail as a matter of law. "When there are no disputed facts, the existence of difficult or complicated questions of law is not a bar to summary judgment. Further, in the present action, the intervenors, did not present any evidence which was inconsistent with or contradictory with the former trustee's accounting. Hence, summary judgment was granted on all motions, and the successor equity receiver's claim for wrongful set-off and surcharge against the former trustee was denied.