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Docket Number

No. 21680.

Attorney(S)

C.M. Thorp, Jr., of Pittsburgh, Pa., for debtor. T.F. Ryan, of Pittsburgh, Pa., for trustees. Walter Blenko, of Pittsburgh, Pa., for Hartford Empire Co. F.W. Stonecipher, of Pittsburgh, Pa., for unsecured creditors. W.G. Heiner, of Pittsburgh, Pa., for Marshall Elevator Co. C.M. Thorp, of Pittsburgh, Pa., for Pittsburgh Coke Chemical Co.

Judges

Robert Murray Gibson

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Smart Summary

Summary of Opinion: In re Neville Island Glass Co., Inc. (W.D. Pa., June 29, 1948)

Factual and Procedural Background

The Trustees filed a petition substantially requesting instructions from the court; no facts were in dispute. Patented equipment had been installed in the debtor's plant under lease-license agreements with Hartford Empire Company. Under those agreements the debtor had paid license fees totaling $161,862.50 and expended additional installation costs, bringing total expenditures to $255,948.42. The agreements provided for minimum royalties of $15,150 per year, payable at $1,262.50 monthly. At the time of the trustees' appointment the debtor held an option to purchase the equipment for $291,000; the court noted the equipment would cost approximately $500,000 to replace.

The debtor defaulted on production royalty payments for the months between October 1947 and February 1948. The lease-license agreements contained a provision allowing Hartford Empire Company to revoke the license and repossess the equipment in the event of bankruptcy or appointment of a receiver for the debtor. Hartford offered, as reported in the trustees' petition, to extend any repossession procedure to September 1, 1948 (agreed at the hearing to December 1, 1948) if the trustees would immediately pay royalties in default from September 1947 through February 1948 amounting to $21,803.70 and the minimum royalties due monthly since the appointment of the trustees. The trustees then had free cash of $34,419.39.

Legal Issues Presented

Whether the trustees should be authorized to pay the past-due royalties (September 1947 through February 1948) in order to obtain an extension from Hartford Empire Company preventing repossession of the leased equipment.
Whether the minimum monthly royalties that accrued beginning March 1, 1948 are administrative expenses that the trustees are authorized to pay pending further order of the court.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court proceeded on the basis that no factual dispute existed and confined its analysis to the trustees' request for instructions. It identified two competing practical outcomes: (1) acceptance of Hartford's proposition and payment of the past-due royalties would materially reduce the trustees' available cash and, thereby, apparently injure the rights of unsecured creditors; and (2) if Hartford proceeded to repossess the equipment pursuant to its contractual rights and succeeded, a reorganization of the debtor would be impossible and the likelihood of recovery by unsecured creditors would be extinguished. The court observed that participants at the hearing admitted these consequences.

On this record the court concluded that approving payment of the past-due amounts covering September 1947 through March 1, 1948 would be tantamount to a judicial determination that a successful reorganization was possible; the court found no firm foundation then existed for making such a determination. By contrast, the court characterized the minimum payments accruing under the license agreements as administrative expenses from March 1, 1948, and concluded these should be paid unless and until the trustees, in their sound discretion, determine reorganization is impossible and notify the court. The court further stated that, until both it and the trustees have a reasonable opportunity to consider the matter, the equipment should not be removed from the supervision of the reorganization court.

Holding and Implications

Holding: The court authorized the trustees to pay the amount of the minimum monthly royalties due from March 1, 1948 until further order of the court, and rejected the trustees' reported offer to pay the past-due royalties from September 1947 through February 1948 except as set forth in the opinion.

Implications: The direct effect is (a) trustees may treat the minimum monthly royalties accruing from March 1, 1948 as administration expenses and pay them pending further court order, and (b) the trustees' request to pay the earlier arrearages to obtain an extension from Hartford was rejected at this time because the court was unwilling to assume that reorganization was feasible. The opinion imposes no broader rule of law in the text and does not indicate that a new precedent was established.

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In re NEVILLE ISLAND GLASS CO., Inc.

Proceeding in the matter of Neville Island Glass Company, Inc., debtor. On a petition by trustees which is substantially a request for instructions.

Order in accordance with opinion.

GIBSON, District Judge.

The Trustees have filed a petition which is substantially a request for instructions. No facts are in dispute.

Patented equipment was installed in the debtor's plant under lease-license agreements with Hartford Empire Company upon which the debtor paid license fees of $161,862.50 and expended additional funds for installation of the equipment, so that the total of $255,948.42 has been expended. The agreement provides for minimum royalties of $15,150 per year payable $1,262.50 monthly.

The debtor, on date of appointment of the Trustees, had an option to purchase the equipment for $291,000. The cost of the same equipment would be approximately $500,000.

The debtor defaulted in payment of production royalties for the months between October, 1947, and February, 1948.

The lease-license agreements provide for the revocation and repossession by Hartford Empire Company in the event of bankruptcy or appointment of a receiver for the debtor.

The Trustees' petition recites a proposition to them by which Hartford Empire Company agreed to extend the time of any procedure by it to repossess the equipment to September 1, 1948 (agreed, in hearing to December 1, 1948) if the Trustees would pay immediately the royalties in default from September, 1947, to and including February, 1948, amounting to $21,803.70, and the minimum royalties due monthly since the appointment of the Trustees.

The free cash in the hands of the Trustees is the sum of $34,419.39. Were the proposition of the Hartford Empire Company to be accepted the cash of the debtor would be materially reduced to the apparent injury to the rights of unsecured creditors. On the other hand, if the rights of the Hartford Empire Company were to proceed, and succeed, in a petition to repossess the equipment then a reorganization of the debtor would be impossible and the probability of unsecured creditors would fade into thin air. This was admitted by all who engaged in the hearing upon the Trustees' petition.

The court feels that the payment of the amount of the payments due between September, 1947, and March 1, 1948, should not be approved at this time. The approval would be equivalent to finding that a successful reorganization is possible, and no firm foundation now exists for such a finding.

The minimum payments under the license agreements is an administration expense since March 1, 1948. They should be paid unless and until the Trustees in their sound discretion feels that a reorganization is impossible and so notifies the court.

Until the court has reasonable opportunity to pass upon this phase, and the Trustees have the same opportunity, the equipment cannot be taken from a reorganization court.

Order.

And now, to wit, the petition of the Trustees having been considered and duly heard, it is ordered and adjudged that said Trustees be and hereby are authorized to pay to the Hartford Empire Company the amount of the minimum due monthly from March 1, 1948, until further orders of the court; and it is further ordered that the offer to said Trustees, as reported in their petition, be rejected except as herein set forth.

IN RE NEVILLE ISLAND GLASS CO., INC., (W.D.Pa. 1948)