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July 26, 1962


The opinion of the court was delivered by: John E. Miller, Chief Judge.

  This controversy is before the court on a petition of Tedesco, Inc., the respondent, for review of an order of the Referee in Bankruptcy, dated December 22, 1961, which allowed the petition of the Trustee to surcharge Tedesco, Inc.

The Referee, after a hearing held on August 18, 19, 24, and 25, 1961, and a hearing on December 19, 1961, made certain findings of fact and conclusions of law which are contained in the opinion incorporated in the order of which review is now sought.

The petitioner, Tedesco, Inc., alleges that it is aggrieved by said order in that the Referee committed error therein by making findings which were clearly erroneous and not supported by substantial or admissible evidence, and furthermore that the Referee's order surcharging Tedesco, Inc., as a defaulting purchaser was erroneous as a matter of law.

On May 22, 1962, the Referee certified the matter to this court. Since that date memorandum briefs in support of and in opposition to the above petition have been furnished the court.

With respect to the petitioner's assignments of error, the Referee in his certificate has stated that these assignments of error are insufficient in that they do not conform to the provisions of Sec. 39, sub. c of the Bankruptcy Act, 11 U.S.C.A. § 67, sub. c, (Supp. 1961), which require:

    "* * * Such petition shall set forth the order
  complained of and the alleged errors in respect

It has been consistently held that the judge may either decline to pass upon points not specifically designated or he may simply dismiss the petition. In re Musgrave, (D.C.W.Va. 1939), 27 F. Supp. 341; In re Florsheim, (D.C.Cal. 1938), 24 F. Supp. 991; see, 2 Collier on Bankruptcy, Sec. 39.22 (14th Ed. 1956). This situation arose in the case of In re Inman, (N.D.Maine 1957), 157 F. Supp. 506, at page 508 in which the court stated:

    "The third, fourth and fifth assignments of
  error in this petition allege error in general
  terms only, viz.: that the Referee used as a
  determining factor in his opinion evidence or
  testimony which presumably the petitioner feels
  should not properly have been considered by the
  Referee. They do not, however, specify the
  evidence or testimony involved, and despite close
  questioning by the Court at the hearing counsel
  was unable to direct the Court's attention to the
  specific evidence or testimony of which complaint
  is made. The authorities hereinbefore cited hold
  that on a petition to review the Court cannot be
  compelled to search the record for error, and
  this Court will not undertake to do so.
    "* * * However, it has been said that `* * *
  where patent and unmistakable error appears in
  the record, the court may, in the interests of
  expeditious justice, take cognizance of it.' See
  In re Florsheim, supra, [D.C.] 24 F. Supp. at page
  992. And, it being apparent from this record that
  the assignments of error are based upon the
  alleged insufficiency of the evidence, in the
  interest of expeditious justice the sufficiency
  of the evidence will now be considered."
  This court is of the opinion that due to the facts in the present case, which has been actively contested, the interest of "expeditious justice" demands a complete review of the record which has been submitted by the Referee along with his certificate.

Briefly, the facts as reflected by the record and found by the Referee are as follows:

On April 4, 1960, certain creditors of the bankrupt filed their complaint, praying that Hot Springs Broadcasting, Inc., be adjudged a bankrupt. The complaint was referred to the then Referee, Honorable Lee Cazort, on the same date. Summons was issued on April 4, 1960, directing the alleged bankrupt to appear and plead to the petition on or before April 25, 1960, and warning the alleged bankrupt that if it failed to do so, that it might be adjudged a bankrupt by default. The summons was served by the United States Marshal on April 6, 1960, by delivering a copy thereof with complaint attached to Dick Biddle, President of the alleged bankrupt.

The alleged bankrupt failed to appear, and on April 26, 1960, the Referee duly adjudicated Hot Springs Broadcasting, Inc., a bankrupt.

After a hearing conducted on January 18, 1961, the Referee on March 2, 1961, held, inter alia, that the order of adjudication made by default April 26, 1960, constituted a final order and was not subject to attack by virtue of the bankrupt's petition to vacate. The petition to review this order, filed by the bankrupt, was denied by this court which on April 13, 1961, entered an order adopting and confirming the report and order of the Referee adjudicating the corporation a bankrupt.

The Trustee filed his verified petition on November 1, 1960, for authority to employ an auctioneer and to conduct a public sale of the assets belonging to the bankrupt estate free and clear of liens. On November 2, 1960, an order was entered granting the petition of the Trustee. On the same date notice of said sale to be held on November 17, 1960, at the premises occupied by the bankrupt, was duly given to creditors and all persons in interest as is by law provided. The order of the court and the notice of sale provided that the same was to be for cash in hand subject to the approval of the court, and that the transfer of the license to operate Radio Station KBLO was subject to the approval of the Federal Communications Commission and the purchaser would have to make his own arrangements with said Commission for the transfer of said license.

Thereafter, on November 14, 1960, prior to the sale, an amendment to the order of sale was entered, setting forth that the Trustee had been advised that a purchaser at the Trustee's sale would not be permitted under regulations of the Federal Communications Commission to operate the radio station pending consummation and approval as provided by the rules and regulations of the said Federal Communications Commission. The amended order directed that any purchaser would be required to deposit with the Trustee the full amount of the bid in cash, subject to the approval of the court; that the purchaser would forthwith take such steps as may be necessary to comply with the regulations of the Federal Communications Commission with reference to the permit to broadcast; that pending confirmation of said sale by the Federal Communications Commission the Trustee would continue to operate Station KBLO keeping separate accounts of all funds received and debts incurred from the time of the sale; that when and if confirmation of said sale be made by the Federal Communications Commission the purchaser would take possession as of November 17, 1960, and be chargeable with all expenses of operation during the interim period and would be entitled to the receipts of the radio station during such interim period; that final approval of the sale was to be held in abeyance subject to the order of approval of the Federal Communications Commission and if the sale be not approved by said Commission the Trustee should report back to the Court for further orders as may be proper.

At the conclusion of the sale by the auctioneer, the Referee in Bankruptcy was advised over long distance telephone that Tedesco Inc., had bid $17,000.00 cash; that said bid was the highest and best bid obtainable, and upon recommendation of the Trustee said bid was approved, in conformity with the orders theretofore made and entered, and the respondent deposited with the Trustee in bankruptcy the amount of his bid.

Thereafter, on November 25, 1960, the Trustee's attorney notified respondent's attorneys preparation of the formal order confirming the sale was being held in abeyance pending their advice, and said attorneys were requested to advise how the matter was progressing with reference to transferring the permit. On December 1, 1960, respondent's attorneys advised Trustee's attorney that respondent's Washington counsel had notified them the terms of sale as specified were acceptable to the Federal Communications Commission, and respondent expected to have its part of the application for transfer of the license ready for filing within the next few days. On January 9, 1961, the Trustee's attorney notified respondent's attorneys that no word had been received from the Federal Communications Commission and that since it was necessary to file reports prior to the end of February to comply with regulations pertaining to renewal of the license, respondent was again requested to advise what was transpiring with reference to the application to transfer the permit. On January 11, 1961, respondent's attorneys acknowledged receipt of the aforesaid letter and requested one certified and five ordinary copies of the order confirming the Trustee's sale, but made no mention in said letter of the transfer of the permit. On January 19, 1961, the Trustee's attorney forwarded respondent's attorneys one certified and five carbon copies of the order approving the bid, and again asked for information concerning the status of the application for transfer of the permit. On February 17, 1961, the Trustee's attorney again wrote respondent's attorneys asking information concerning the transfer of the permit and that such information be forwarded direct to the court or to the attorney. If respondent's counsel responded to the request, he did not advise the Trustee's counsel that application for transfer of the permit had not been filed.

The Trustee's counsel had occasion to call respondent's attorney over long distance telephone on March 24, 1961, relative to the financial condition of Station KBLO, and for the first time learned that application for transfer of the permit had only been filed a day or two prior to the conversation, the substance of which was reported to the court. A letter was addressed to respondent's counsel under date of March 24, 1961, in which said counsel was advised an order would be entered directing that the sum of $1,500.00 be transferred from the deposit made by the respondent so that the Trustee could meet his payroll on the following Monday; and in said letter the respondent's counsel was again urged to expedite securing the approval of the transfer of the ...

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