249 F.2d 634
C. B. PORTERFIELD and Morris Margulis, Intervenors, Appellants,v.L. M. GERSTEL, Receiver of Metal Extrusions, Inc., Bankrupt,Appellees.
No. 16423.
United States Court of Appeals Fifth Circuit.
Nov. 21, 1957.

Joseph Gassen, Thomas H. Anderson, Miami, Fla., Sibley & Davis, Miami Beach, Fla., Anderson & Nadeau, Miami, Fla., for appellants.
Marx Faber, Harold Friedman, W. G. Ward, Ward & Ward, Miami, Fla., for bankrupt.
Feibelman & Friedman, Miami, Fla., for trustee.
Before HUTCHESON, Chief Judge, and TUTTLE and WISDOM, Circuit Judges.
WISDOM, Circuit Judge.


1
This hotly contested case is before us for the second time.  Now, as in Porterfield v. Gerstel, March 30, 1955, 222 F.2d 137, the controlling question is whether the District Court for the Southern District of Florida erred in confirming an order of the Referee in Bankruptcy dismissing appellants' petition of intervention to vacate an order of adjudication of bankruptcy.  The issue tried and determined in the negative both times below was whether Ben Marden, Sonny Marden, and J. J. Pass, who owned 50% of the stock of Metals Extrusions, Inc. and were three of the five members of the board of directors, fraudulently put the company into bankruptcy in order to freeze out the other stockholders and minority directors, Porterfield and Margulis (intervenors and appellants).


2
On the first trial, the referee decided against Porterfield and Margulis.  In a short opinion, the referee held that the testimony did not bear out the charges of fraud.  The district court confirmed the referee's order, without writing an opinion.  On appeal, this Court reversed the District Court and remanded the case 'with directions that the bankruptcy court conduct a further hearing to afford the trustee an opportunity to meet the prima facie case already made by the intervenors or in default of this to sustain the petition of intervenors to set aside the adjudication of voluntary bankruptcy and to take such further proceedings as may be consistent with this opinion.'  Porterfield v. Gerstel, 5 Cir., 1955, 222 F.2d 137, 143.


3
Appellants, pleased with these expressions in the first opinion, contend that essentially nothing new has been added since the case was here before; that therefore we must reverse the district court again.  There is no sound basis for this contention.  On the first appeal we did 'hold that the intervenors made out a prima facie case, and unless the proof already adduced is met by countervailing evidence, the intervention must be sustained'.  But this statement is only a part of the opinion.  Immediately preceding this observation we were careful to say: 'We, of course, do not imply that the facts alleged in the intervention are true'.  Again, the allegations of the intervenors, 'if proved, would authorize a holding by the Referee that the adjudication should be vacated.'  We commented on the summary nature of the proceedings and the lack of evidence showing that the company's financial problems were responsible for the filing of the bankruptcy petition.


4
But now we have a different case: testimony from new witnesses, new testimony from witnesses who testified before, new exhibits, a completely different record, and new judgments from the referee and the district judge, each of whom wrote a careful opinion analyzing the evidence.


5
On the second trial, in compliance with the mandate of this Court, additional hearings were held: September 14, 1955; November 15, 1955; January 5, 1956; and January 12, 1956.  Five new witnesses testified for appellees.  (1) Bullick, an accountant, stated that he made an audit, commencing August 8, 1953, showing that 'the bankrupt's cash position was very weak, dangerously so; that the shortage was permanent.'  (2) Lawley, a banker, testified in regard to credit negotiations by Marden.  (3) Sickles, the company's bookkeeper, testified in regard to the company's financial straits and to Porterfield's knowledge of bills, and the checks used to pay bills.  Neither Marden testified in the hearings on the first case; both testified in this case.  (4) Sonny Marden testified at length in support of appellees' position.  He stated that he presented to Porterfield checks drawn on the $30,000 invested by the Mardens, and that Porterfield knew about the checks and the bills paid by such checks.  (5) Ben Marden testified in regard to his unsuccessful efforts to establish a line of credit.  On this testimony we cannot say, as we did earlier, that 'the company's financial problems really had nothing whatever to do with the filing of the voluntary bankruptcy petition.'  Porterfield v. Gerstel, 5 Cir., 222 F.2d 137, 142.


6
Certain exhibits, including checks and the minutes of the corporation, which were not in the record on the first appeal, are included in the record on this appeal.  These exhibits and certain testimony tend to refute Porterfield's statements in the first case that he knew nothing about, payment of bills from the Mardens' $30,000; that 'they just paid the bills to embarrass us.'


7
Appellants recalled as witnesses Porterfield, Margulis, and Faden.  Two new witnesses, Sierra, a plant employee, and Joseph Gassen, one of the attorneys, testified for intervenors.  There were some conflicts between Faden's testimony in the later hearings and the earlier hearings; and the referee commented, in his opinion, that he was 'unable to say that Faden is a disinterested witness.'


8
Twice the referee has had an opportunity to observe the witnesses as they testified, a crucial vantage point this Court does not have.  On the second series of hearings the referee (and counsel, of course) had the benefit of knowing the doubts we expressed in our opinion on the first appeal.  The referee is now doubly certain that he was right the first time.1  'Reviewing this testimony (brought out in the new hearings) and all of the testimony taken in the case', he felt 'constrained to believe that if our Court of Appeals had had this testimony before it, that possibly its comments on the facts might have been different'.  (R 71.)


9
On review to the District Court, the District Judge is required to accept the findings of fact made by the referee, unless they are clearly erroneous.  Phillips v. Baker, 5 Cir., 1948, 165 F.2d 578, 581.  District Judge John W. Holland, now retired, confirmed the first order of the referee.  District Judge Emett C. Choate reconfirmed, and wrote a careful opinion in support of his judgment.  He concluded that 'even if this Court were to treat this review as a trial de novo, the findings of the referee were entirely proper, for by considering and weighing all of the evidence presented by both sides there is insufficient proof to support the allegations of fraud'.  (R. 80.)


10
The rule guiding district courts has its analogue in the Circuit Court.  'The district judge is required to accept the findings of fact made by the Referee unless clearly erroneous.  Bankruptcy General Order 47, 11 U.S.C.A. following section 53.  Such is the rule which governs us with respect to findings of the district court.  Rule 52(a), Fed.Rules Civ.Proc., 28 U.S.C.A.'  Frazier v. Ash, 5 Cir., 1956, 234 F.2d 320, 326.  This Court has held many times that when the district Judge has approved the referee's findings, the Court of Appeals will not interfere with the decision unless error is clearly demonstrated.  Wetzel v. Schaefer, 5 Cir., 1942, 124 F.2d 308; Phillips v. Baker, 5 Cir., 1948, 165 F.2d 578; Griffin v. Kelley, 5 Cir., 1955, 227 F.2d 258; Nicholas v. Bergman, 5 Cir., 1956, 233 F.2d 384.  See, also, Moore's Federal Practice, 53.12(6), p. 2989 et seq. and 8 Remington on Bankruptcy 344.

The Court has scrutinized the

11
The Court has scrutinized the records in the earlier appeal for comparison with the record in this appeal.  Considering this hard fought case2 in its entirety, we cannot say that the district court's findings were clearly erroneous.  The judgment appealed from is


12
Affirmed.



1
 'Reviewing this case in its entirety, we find the following:
'Here was a conservative small manufacturing enterprise whose business was to purchase raw aluminum and convert it into extruded products.  It had reached a condition where it was insolvent in the equity sense; it could not pay its bills as they matured; it was running over drafts in the bank; it was borrowing from its officers; it was failing to pay its aluminum suppliers which would have cut its lifeline.  In this situation the Marden interest bought into the business; and whatever their intentions were, they advanced $30,000.00 in cash.  This money instead of being used for necessities, was used to pay past due bills; perhaps that was a necessity; Marden did consult a bank with reference to a line of credit, which the company sorely needed, Marden proposed a reorganization; Margulis would have gone along with him, but Porterfield did not.  An examination of the proposed reorganization does not show an attempt to obtain control of more than 50% of the stock, but on the contrary shows that Marden was attempting to make it possible for the Porterfield-Margulis interests to retain 50% of the stock.  It is difficult to say when or how the troubles began; possibly the removal of the small motor by Porterfield was the cause; whatever the cause, apparently someone had attempted to sabotage the machinery, and every quickly from then on an impasse was reached, or as the minutes said, the stockholders were deadlocked in dissension.
'As the Referee ssees the picture, one of three things then became inevitable: First, that some creditor or creditors would file suit; second, that creditors or either stockholders might ask in equity for the appointment of a receiver; or, third, exactly what did happen, that creditors or the debtor would seek relief in a Court of Bankruptcy.
'As the Referee observed on the first hearing, this so frequently happens when partners in an enterprise cannot get along.  Porterfield and Margulis charge a conspiracy on the part of the Marden interests to file the voluntary petition and bring about a judicial sale of the company's assets.  I am unable to say that the testimony and exhibits in this case prove that this is what happened.  Suppose the Marden interests had done nothing, then surely the Porterfield interests, or the creditors, would have had to bring some kind of Court action to protect their interests.  The longer waited, the less the assets would have produced.'  (R. 72.)


2
 Between the two trials in the federal courts there was also litigation in the state courts.  In Porterfield v. Marden, 1956, 88 So.2d 608, the Supreme Court of Florida affirmed the Circuit Court's dismissal of Porterfield's action against the directors.  The Court held that where two stockholders brought action against the directors of the corporation without any showing that the directors had preferred creditors, secluded assets or were otherwise guilty of fraud, dismissal of their complaint was proper


