120 F.2d 149 (2nd Cir. 1941), 288, Governor Clinton Co. v. Knott

Docket Nº:288.
Citation:120 F.2d 149
Party Name:GOVERNOR CLINTON CO., Inc., v. KNOTT et al.
Case Date:June 04, 1941
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 149

120 F.2d 149 (2nd Cir. 1941)

GOVERNOR CLINTON CO., Inc.,

v.

KNOTT et al.

No. 288.

United States Court of Appeals, Second Circuit.

June 4, 1941

Page 150

James Madison Blackwell, of New York City (Blackwell Bros., of New York City, on the brief), for petitioner-appellee.

Nathan L. Miller, of New York City (Krause, Hirsch & Levin, George C. Levin, and James Nevins Hyde, all of New York City, on the brief), for respondents-appellants David H. Knott and Knott Management Corporation.

Aaron William Levy, of New York City, for respondent-appellant Gabbe.

David Kugel, of New York City, for respondent-appellant Cantor.

Charles E. McMahon, of New York City, for respondent-appellant Gladstone.

Before SWAN, CHASE, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

A voluntary petition for a reorganization of Hotel Governor Clinton, Inc., under the then Bankruptcy Act, Sec. 77B, 11 U.S.C.A. § 207, was filed June 14, 1935. The property of the debtor had been for more than three years under the joint management of a bondholders' committee and of respondents Cantor, Gabbe, and Gladstone, respectively debtor's president, treasurer, and attorney, but during that time had never earned enough to cover taxes or interest on its bonds. Consequently the bankruptcy court, as a condition to continuing it in possession, required the debtor to execute a contract with the respondent Knott Management Corporation giving the latter substantial control over the operation of the debtor's property in return for 3 per cent of the debtor's gross revenues, payable only if the property earned enough to meet its tax liabilities. Such contract, terminable by the debtor on 60 days' notice, was approved by a court order of July 31, 1935. Pursuant to the contract, the Management Corporation successfully operated the property from August 1, 1935, until March 26, 1937, while the debtor was in possession, and from the latter date, when a trustee was appointed, until December 15, 1937, when reorganization was completed. It received therefor each month sums aggregating $99, 347.11-- $66, 008.71 before, and $33, 338.40 after, the trustee's appointment. Petitioner herein, Governor Clinton Co., Inc., succeeded to the property of the debtor by an order of confirmation of the reorganization made on December 2, 1937.

One-third of the sum received by the Management Corporation each month was paid by it through its holding company to Gabbe, and was by him divided with Cantor and Gladstone. None of these payments were ever reported, or in any way made known, to the court. It is the refund of these payments which was ordered below on the ground of 'a fraud perpetrated upon this Court, ' and which is the subject of appeal. Respondents, appellants herein, urge objections here both on the merits and to the jurisdiction of the bankruptcy court, as well as to the right of petitioner to receive the repayment.

We may dispose of the latter point at once. We are clear that respondents' objection to a demand by the debtor's successor instead of by its trustee, on the ground that the former represents only the debtor's bondholders, the latter all the creditors, cannot prevail. It is true that the December 2, 1937, order reserved jurisdiction to authorize suits by the trustee in behalf of the general creditors, and that

Page 151

no such authority has been granted. But the same order vested in this petitioner 'all other property of the Debtor and the Trustee of the Debtor, except as herein or in the Plan otherwise provided * * * free and clear of all claims of creditors of the Debtor, and all other claims and liens except as provided in the Plan and this Order'; and it also required the Management Corporation, after accounting to the court, 'to turn over to the New Corporation any and all moneys and proceeds in its hands which it may have received under and pursuant to the terms of the Management...

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