Mar-Tex Realization Corporation v. Wolfson

• Citation: 145 F.2d 360
• Decision Date: 02 November 1944
• Docket Number: No. 38.,38.
• Parties: MAR-TEX REALIZATION CORPORATION v. WOLFSON.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

145 F.2d 360 (1944)

MAR-TEX REALIZATION CORPORATION v. WOLFSON.

No. 38.

Circuit Court of Appeals, Second Circuit.

November 2, 1944.

Julius Lerner, of New York City (Meyer Dvorkin, of New York City, on the brief), for appellant.

John A. Kelly, of New York City (Milbank, Tweed & Hope and Thomas P. Farley, all of New York City, on the brief), for appellee.

Before L. HAND, SWAN, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

In September, 1937, appellant Wolfson brought action in the Supreme Court of the State of New York to recover $12,199.67 of the Mar-Tex Oil Company as unpaid balance of the purchase price of 64 shares of stock of Tex Holdings, Inc., sold by him to the Company the previous year. Pursuant to a warrant of attachment issued in that action, the Sheriff of New York County levied on funds of the defendant in the amount of $4,770.34. These funds, still held by his successor, the Sheriff of the City of New York, furnish the casus belli herein. Before the action came on for trial, the defendant Oil Company filed a petition for reorganization under Bankruptcy Act, Ch. X, 11 U.S.C.A. § 501 et seq., in the District Court of the United States for the Northern District of Texas; and that court on November 20, 1940, stayed appellant's continuation of his action "until final decree, or the further order of this court." Pursuant to this order the New York Supreme Court stayed trial. Thereafter appellant filed a proof of claim in the reorganization proceeding to recover the same amount sought in his action in New York. The District Court appointed a special master, who, notwithstanding appellant's objections to his jurisdiction, proceeded to take testimony in appellant's absence and filed his report disallowing appellant's claim. This report the court approved, and then it overruled exceptions filed by appellant to it. Requests for the fund to the sheriff and appellant having failed to produce it, the court on June 30, 1942, after notice and hearing entered an order finding the debtor's trustee entitled to the fund and directing the sheriff and appellant to turn over and surrender it, less legal charges. When this order was not obeyed, the trustee moved that the sheriff be held in contempt; and the motion was granted over opposition of the sheriff and appellant, although no order has been entered. No appeals were taken from these or any of the later holdings or orders of the District Court in Texas.

On May 1, 1943, the reorganization proceedings had advanced to the point where the reorganization court entered an order in aid of consummation of the amended plan of reorganization, under which Mar-Tex Realization Corporation, appellee herein, had been organized to take over the debtor's assets, subject to certain liabilities. This order further vested in appellee all "the rights, title and interest" of the debtor and of the trustee to this fund, and granted it authority to take any necessary action or other legal proceedings, in its own name or in the name of the trustee, to recover the fund. The trustee then assigned to appellee all of his and the debtor's right, title, and interest in and to "that certain cause or causes of action which said debtor" had against appellant and the sheriff, "involving the sum of approximately $4,770.34." In the order the court reserved jurisdiction "of and over such claim and all issues of fact and law involved in connection therewith."

The final reorganization decree was entered by the District Court in Texas on June 19, 1943. This reserved full jurisdiction to determine and take all action necessary in connection with the debtor's claim against the sheriff, closed the estate of the debtor, and discharged it from its debts, discharged the trustee, and perpetually enjoined and stayed all creditors and claimants from pursuing any proceedings at law or otherwise against the debtor based on any claim existing at the time of the filing of the reorganization petition.

Thereafter appellant sought to have the stay in the New York Supreme Court vacated, but this was opposed by appellee on a full showing of the above facts. Nevertheless that court vacated the stay on November 13, 1943, and restored the action to the calendar for trial, granting leave to the debtor, however, to file a supplemental answer setting up the final decree of the District Court as a defense. Thereafter appellee moved in the action to vacate the warrant of attachment, or, in the alternative, for leave to intervene to set up the District Court decree as a defense; but this motion was denied, and the case was on the calendar for trial until the court below granted the permanent stay from which this appeal has been taken.

Appellee relies on the decree from Texas as full and final adjudication against appellant, and the order below as in proper aid of this decree. This view was accepted by the District Court, 54 F.Supp. 593. Appellant relies on several cognate points to the effect that the relief in any event was misconceived, since at best appellant could be enjoined only from obtaining the fund in question, not from pressing his action, that the stay order of 1940 had expired, that appellee was not a party to the state action and hence could not ask for its stay, that the court was without power to order a permanent, as distinguished from a temporary, stay of a state court action, and that appellee, having sought to appear in the state court action, is bound by its orders.

So far as appellant's grounds of appeal stress merely procedural, rather than jurisdictional, problems, we think they can be disposed of shortly. Thus the original stay of 1940, authorized by 11 U.S.C.A. §§ 29, 516(4), was properly superseded by the permanent stay on final decree, 11 U.S.C.A. § 628(4); the court properly reserved jurisdiction to see that its decree was carried out, North American Car Corp. v. Peerless Weighing & Vending Mach. Corp., 2 Cir., 143 F.2d 938; Clinton Trust Co. v. John H. Elliott Leather Co., 2 Cir., 132 F.2d 299, 303, and cases cited; In re Paramount Publix Corp., 2 Cir., 82 F.2d 230; it had constituted appellee as the agency to act in the premises, either in its own name or in the name of the trustee, In re Standard Gas & Electric Co., 3 Cir., 139 F.2d 149, certiorari denied Spitzer v. Standard Gas & Electric Co., 321 U.S. 796, 64 S.Ct. 848; Shores v. Hendy Realization Co., 9 Cir., 133 F.2d 738; it might properly stay state court proceedings which interfered with its exclusive jurisdiction and violated its express orders, Ibid.; Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230, 93 A.L.R. 195; Beneficial Loan Co. v. Noble, 10 Cir., 129 F.2d 425, 427; Seaboard Small Loan Corp. v. Ottinger, 4 Cir., 50 F.2d 856, 859-860, 77 A.L.R. 956; and appellee cannot be held to have destroyed an exclusive bankruptcy jurisdiction, if existing, by its attempts to demonstrate to the state court that such jurisdiction did exist. Continental Illinois Nat. Bank & Trust Co. of Chicago v. Chicago, R. I. & P. R. Co., 294 U.S. 648, 55 S.Ct. 595, 79 L.Ed. 1110; Marine Harbor Properties v. Manufacturer's Trust Co., 317 U.S. 78, 84, 85, 63 S. Ct. 93, 87 L.Ed. 64.¹ Hence the real issues here involved are the extent to which the District Court in Texas had jurisdiction in the premises, and how far the District Court in New York might go in aid of that jurisdiction, if existing.

That the District Court in Texas was the appropriate federal court for the reorganization proceedings under 11 U.S.C. A. § 528 has not been challenged and now cannot be attacked. Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134, 83 L.Ed. 104. Hence that court had "exclusive jurisdiction of the debtor and its property, wherever located." 11 U.S.C.A. § 511. Unlike the territorially limited jurisdiction of the bankruptcy court in an ordinary liquidation proceeding, the summary power of the reorganization court is complete throughout the country; and in consequence, its process runs in any judicial district. In re Greyling Realty Corp., 2 Cir., 74 F.2d 734, certiorari denied Troutman v. Compton, 294 U.S. 725, 55 S.Ct. 639, 79 L.Ed. 1256; In re Standard Gas & Electric Co., supra; see also Continental Illinois Nat. Bank & Trust Co. of Chicago v. Chicago, R. I. & P. R. Co., supra, 294 U.S. at page 683, 55 S.Ct. at page 609, 79 L.Ed. 1110. These extensive powers were granted to the reorganization court in order to eliminate the time-consuming and costly procedure in equity receiverships, which necessitated the appointment of ancillary receivers in districts other than the domiciliary district, Swaine, Corporate Reorganization under the Federal Bankruptcy Power, 19 Va.L. Rev. 317, 327-328; Gerdes, Section 77B, the Chandler Bill and Other Proposed Revisions, 35 Mich. L. Rev. 361, 363, by substituting therefor the centralized administration of a single reorganization court. In re Greyling Realty Corp., supra; Rep. of Com. on the Judiciary, "Revision of the National Bankruptcy Act," H.R.Rep. No. 1409, 75th Cong., 1st Sess., 37. This District Court's exclusive and summary jurisdiction, therefore, reached to the particular funds involved. This is so, despite the earlier attachment, for this at most afforded security for the payment of appellant's claim and it is well settled that the administration and modification of secured claims is an essential feature of a corporate reorganization. In re Prudence-Bonds Corp., 2 Cir., 77 F.2d 328, 330, certiorari denied President and Directors of Manhattan Co. v. Prudence-Bonds Corp., 296 U.S. 584, 56 S.Ct. 95, 80 L.Ed. 413; In re Maier Brewing Corp., D.C.S.D. Cal., 38 F.Supp. 806, 815-818; cf. In re Franklin Gardens Apts., D.C.E.D.N.Y., 40 F.Supp. 117; In re Koch, 2 Cir., 116 F.2d 243, certiorari denied Hirson v. Koch, 313 U.S. 565, 61 S.Ct. 941, 85 L.Ed. 1524; Emil v. Hanley, 318 U.S. 515, 522, 63 S.Ct. 687, 87 L.Ed. 954.

Objection is made that the present proceeding is not in rem against property, but is only in...