Sherr v. Winkler

Sherr v. Winkler

Opinion

 [*1369]  BARRETT, Circuit Judge.

Arthur Sherr and Richard Rubin, plaintiffs below, hereinafter referred to as plaintiffs, appeal from a judgment dismissing their action and complaint in a diversity suit in tort brought against L. W. Winkler, Jr., individually and as Trustee (Winkler) of Sierra Trading Corporation (Sierra). (On July 7, 1970, Sierra had filed for a Chapter X Reorganization, pursuant to 11 U.S.C.A. § 501, et seq., of the Bankruptcy Act.)

The complaint of plaintiffs alleged that Winkler, while serving as trustee for Sierra, (a) negligently and wrongfully caused the Reorganization Court to issue an ex parte Turnover Order resulting in delivery to the [**2]  trustee of funds realized from production of oil belonging to plaintiffs, and (b) negligently failed to ascertain plaintiffs' interest in the subject properties, which was a matter of public record. Plaintiffs contend that as a result of Winkler's misconduct, they were required to intervene in the Reorganization proceedings in order to protect their interest in the properties. Plaintiffs sought damages allegedly incurred from Winkler's negligence: (a) $40,000.00 as attorneys' fees expended from the necessity to intervene in the Reorganization Court proceedings, (b) $7,200.00 as special damages for loss of use of the monies taken and used by Winkler, and (c) $150,000.00 in punitive damages, and interest and costs.

This case represents one segment of a saga which commenced in 1968, from which considerable litigation resulted. During that year Sierra owned a one-half (1/2) interest and American Petrofina Corporation (Petrofina) owned a one-half (1/2) interest in certain oil and gas leases known as the "Ute Leases," situate in Campbell County, Wyoming. On December 16, 1968, Sierra assigned 75 percent of its one-half (1/2) interest in the Ute Leases to Rapp Oil Company (Rapp). Thereafter,  [**3]  Rapp mortgaged its entire interest in the Ute Leases to plaintiffs, and assigned to plaintiffs its entire interest in production from the Ute Leases to secure a loan from plaintiffs of $1,000,000.00, bearing per annum interest of twenty percent (20%).

The mortgage and assignment documents from Rapp to plaintiffs were duly filed and recorded in the office of the County Clerk of Campbell County, Wyoming, in compliance with Wyoming recording statutes. Both a Division Order and a Title Opinion reflected the interest of Rapp in the Ute Leases following the 75 percent assignment from Sierra. These documents were in being when Winkler was appointed trustee on August 18, 1970. It is uncontradicted that Winkler did not check for any recorded interests, including those of Sierra, Rapp or plaintiffs to oil proceeds from the Ute Leases prior to the Reorganization Court Turnover Order hearing on September 4, 1970. A check of such records would have revealed the recorded rights of plaintiffs to all of Rapp's interest in oil proceeds realized from the "Ute" production. The Turnover Order of September 4, 1970, approved by Petrofina's attorney, directed that Winkler, as trustee, hold the proceeds [**4]  until the further order of the Reorganization Court.

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