## Facts

- Atlas Pipeline Corp. (Atlas) was a Louisiana oil-refining business.
- Atlas had issued first-mortgage bonds and second-mortgage bonds secured by mortgages on its property.
- First Trust Co. of Philadelphia (First Trust) was the trustee under Atlas’s first-mortgage bond issue.
- On First Trust’s application, the federal district court appointed a receiver on May 26, 1939, to take control of Atlas’s property; after a later hearing, the receivership was made permanent.
- First Trust later asked the court to authorize the receiver to sell Atlas’s assets as a going concern so the buyer could continue operations.
- Notice of the application for sale was sent to Atlas’s creditors, and the court held a hearing on July 26, 1939, for objections.
- Atlas objected that First Trust could not seek a receiver’s sale without first using Louisiana foreclosure methods—either executory process or a judgment on the merits followed by execution.
- Certain second-mortgage bondholders also objected and asked the court to postpone any sale until their interests, and the amounts owed under the mortgage bond issues, could be identified and addressed.

## Issues

1. Whether a federal court supervising an equity receivership may authorize a receiver to sell mortgaged assets as a going concern without requiring the first-mortgage trustee to first proceed by Louisiana executory process or obtain a prior judgment on the debt.
2. Whether the court should delay the receiver’s sale to allow second-mortgage bondholders time to determine and present their interests and the amounts due under the first and second mortgages.

## Decision

- The court rejected Atlas’s argument that the trustee had to use Louisiana executory process or obtain a prior judgment before seeking a receiver’s sale.
- The court ruled that, once the property was in the custody of the federal equity court through the receivership, the court could direct a judicial sale under its own orders, with creditor notice and a hearing.
- The court permitted a sale as a going concern in principle but granted a short postponement (reported as twenty days) to allow counsel for the second-mortgage bondholders to negotiate and determine the amounts due and outstanding on the first- and second-mortgage bonds before the sale proceeded.
- The court kept the matter under its control so that the rights of the lienholders and other interested parties could be addressed in connection with the sale.

## Legal Principles

- After a federal equity court properly appoints a receiver over a debtor’s property, the court may order a judicial sale of that property through the receivership and is not limited to state-law foreclosure forms as a prerequisite to sale.
- State law determines the existence and priority of lien rights, but the federal court may administer the property in receivership and order a sale using federal equitable procedure.
- A receiver’s sale must be preceded by reasonable notice and an opportunity for affected creditors and lienholders to be heard.
- In exercising equitable control over a receivership sale, the court may set the timing of the sale to address junior lienholder concerns and to permit identification of amounts due under competing liens.

## Conclusion

First Trust Co. of Philadelphia v. Atlas Pipeline Corp. holds that a federal district court supervising an equity receivership may authorize a receiver to sell a debtor’s mortgaged assets as a going concern without first requiring the mortgage trustee to pursue Louisiana executory process or obtain a separate judgment, so long as creditors receive notice and a hearing; the court may also delay the sale briefly to give junior bondholders a fair chance to sort out and present their interests and the amounts owed under the mortgage liens.


First Trust Co. of Philadelphia v. Atlas Pipeline Corp., 29 F. Supp. 32 (1939)