Stevens v. Carolina Scenic Stages

• Decision Date: 09 November 1953
• Docket Number: No. 6646.,6646.
• Citation: 208 F.2d 332
• Parties: STEVENS et al. v. CAROLINA SCENIC STAGES.
• Court: U.S. Court of Appeals — Fourth Circuit

208 F.2d 332 (1953)

STEVENS et al. v. CAROLINA SCENIC STAGES.

No. 6646.

United States Court of Appeals, Fourth Circuit.

Argued October 5, 1953.

Decided November 9, 1953.

Writ of Certiorari Denied March 8, 1954.

F. J. Bostick, J. Hertz Brown and L. A. Odom, Spartanburg, S. C. (Odom, Bostick & Nolen, Spartanburg, S. C., Tillett, Campbell, Craighill & Rendleman, Hugh B. Campbell, Charlotte, N. C., and Carlisle, Brown & Carlisle, Spartanburg, S. C., on the brief), for appellants.

J. Nat Hamrick, Rutherfordton, N. C., and Thomas A. Wofford, Greensville, S. C. (Hamrick & Hamrick, Rutherfordton, N. C., on the brief), for appellee.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

Writ of Certiorari Denied March 8, 1954. See 74 S.Ct. 515.

PARKER, Chief Judge.

This is an appeal from an order entered in the United States District Court for the Western District of South Carolina in an arrangement proceeding under Chapter XI of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq., approving the debtor's petition and directing a receiver of a state court in charge of debtor's property to turn it over to debtor. Debtor is a bus company for which a receiver was appointed by the Court of Common Pleas of Spartanburg County, South Carolina, on August 24, 1951, in an action in the nature of a creditor's suit in which it was alleged that the company was in imminent danger of insolvency, that there were threats of action by numerous creditors and that the business of the company would be disastrously affected if the chattel mortgages on its rolling stock should be foreclosed as the result of such action by creditors. The debtor appeared in the state court and consented to the receivership and a receiver was appointed who took charge of debtor's property and continued the operation of its business. The Chapter XI petition was filed on May 22, 1953, without notice to the receiver or the creditors in the state court, and on the same date an order was entered directing the receiver to turn over to the debtor the property held by him as receiver. Motions by the receiver and one of the principal creditors to vacate the turn over provisions of this order were denied and the receiver and the creditor have appealed.

We think there was error in entering the turn over order when it appeared that the property involved was held by the state court through its receiver and had been so held for approximately twenty-one months prior to the filing of the petition. There is nothing in the Bankruptcy Act which permits a debtor corporation which has sought the haven of a state court receivership and enjoyed it for nearly two years to put an end to that court's jurisdiction and retake possession of its property by the simple expedient of filing with a court of bankruptcy a petition seeking an arrangement with creditors under Chapter XI, and obtaining a turn over order from that court. On the contrary, the amendment of the Bankruptcy Act which added Chapter XI to that statute expressly forbids the entry of such a turn over order, except in Chapter X and Chapter XII proceedings, 11 U.S.C.A. §§ 501 et seq., 801 et seq., after the receiver has been in possession of the property for more than four months. Chapter 2, sec. 2, sub. a(21), 52 Stat. 844,¹ which prescribes the powers of courts of bankruptcy with relation to turn over orders, provides that the court shall have power to —

"(21) Require receivers or trustees appointed in proceedings not under this Act, assignees for the benefit of creditors, and agents authorized to take possession of or to liquidate a person\'s property to deliver the property in their possession or under their control to the receiver or trustee appointed under this Act or, where an arrangement or a plan under this Act has been confirmed and such property has not prior thereto been delivered to a receiver or trustee appointed under this Act, to deliver such property to the debtor or other person entitled to such property according to the provisions of the arrangement or plan, and in all such cases to account to the court for the disposition by them of the property of such bankrupt or debtor: Provided, however, that such delivery and accounting shall not be required, except in proceedings under chapters X and XII of this Act, if the receiver or trustee was appointed, the assignment was made, or the agent was authorized more than four months prior to the date of bankruptcy."

Debtor calls attention to subsection b of section 2 to the effect that nothing contained in the section shall be construed to deprive a court of bankruptcy of any power it would possess in the absence of the enumeration of specific powers. Aside from the fact that a court of bankruptcy has no general power to enter such a turn over order, as we shall hereafter point out, it is perfectly clear that this general language, which was in the statute prior to the Act of 1938, was not intended to nullify the specific limitation contained in the proviso above quoted. That the effect of the proviso is to forbid the entry of a turn over order against a receiver appointed more than four months prior to the date of bankruptcy has been expressly decided and we know of no authority to the contrary. Directly in point is the decision of the Court of Appeals of the Third Circuit in In re Distillers Factors Corp., 187 F.2d 685, 687, where that court said:

"The power of the district court to compel the state receiver to deliver assets to the bankruptcy trustee is dependent on Section 2, sub. a(21) of the Bankruptcy Act. This section explicitly prohibits supersession of the possession of such receivers `except in proceedings under chapters 10 and 12 * * * if the receiver or trustee was appointed * * * more than four months prior to the date of bankruptcy\'."

See also Sada Yoshinuma v. Oberdorfer Ins. Agency, 136 F.2d 460, 461, where the Court of Appeals of the Fifth Circuit, speaking through Judge Hutcheson, said:

"Here the bankrupt vigorously insists that under § 711, Title 11 U.S. C.A., the filing of his petition, regardless of the four months\' period, brought all of his property within the exclusive control of the bankruptcy court. Appellees on their part insist that the referee was right in the view he took that though this is ordinarily true, the filing here of the bankrupt\'s petition for the arrangement of his unsecured debts had no effect on the state court proceeding because Sec. 11, sub. a (21) of Title 11 U.S.C.A. expressly provides that `Such delivery and accounting shall not be required, except in proceedings under chapters 10 and 12 of this title, if the receiver * * * was appointed * * * more than four months prior to the date of bankruptcy.\' We agree. It is settled law that where, as here, the state court took jurisdiction to foreclose a lien and appointed a receiver more than four months before the commencement of proceedings in bankruptcy, the power of the bankruptcy court in proceedings under Chapter XI is not greater than that of the court in ordinary bankruptcy proceedings. The filing by the bankrupt of his arrangement petition had no more effect to oust the jurisdiction of the State Court than the filing by his creditors of an involuntary petition in bankruptcy had. 14th Ed. Collier on Bankruptcy, Vol. 8, pp. 139, 140, 143; 5th Ed. Remington on Bankruptcy, Vol. 7, pp. 172-173. The law was different under former section 74, which was subject to no time limitation."

In Emil v. Hanley, 318 U.S. 515, 63 S.Ct. 687, 688, 87 L.Ed. 954, wherein the Supreme Court held that a state court receiver could not be required to account to the bankruptcy court for the proceeds of a sale made under state court order in foreclosure of a valid lien, even though the receiver was appointed within four months of bankruptcy, the language of the statute here under consideration was interpreted as follows: "Sec. 2, sub. a(21), gives to the bankruptcy court the power in straight bankruptcy proceedings to require `receivers or trustees appointed in proceedings not under this Act' within four months of bankruptcy (1) `to deliver the property in their possession or under their control to the receiver or trustee appointed under this Act', and (2) `to account to the court for the disposition by them of the property' of the bankrupt." (Italics supplied.)

Prior to the Act of June 7, 1934, 48 Stat. 911, 923, amending 47 Stat. 1467, which added section 74 relating to compositions and extensions, it was well settled that a court of bankruptcy would not interfere with possession of a state court which had acquired jurisdiction over property for the enforcement of liens not subject to attack because perfected more than four months prior to bankruptcy; and this was true even though the state court proceeding had been instituted within the four...