Dinerman v. Bowley & Travers, Inc.

• Decision Date: 13 April 1962
• Docket Number: No. 195,Docket 27227.,195
• Citation: 301 F.2d 464
• Parties: Samuel DINERMAN, Petitioning Creditor, Appellant, v. BOWLEY & TRAVERS, INC., Alleged Bankrupt, Appellee.
• Court: U.S. Court of Appeals — Second Circuit

301 F.2d 464 (1962)

Samuel DINERMAN, Petitioning Creditor, Appellant, v. BOWLEY & TRAVERS, INC., Alleged Bankrupt, Appellee.

No. 195, Docket 27227.

United States Court of Appeals Second Circuit.

Argued January 8, 1962.

Decided April 13, 1962.

Ralph Heyman, Brooklyn, N. Y., for petitioning creditor, appellant.

Charles Sutton, Brooklyn, N. Y. (Bonom & Wolfson, Brooklyn, N. Y., on the brief), for alleged bankrupt, appellee.

Before LUMBARD, Chief Judge, and CLARK and FRIENDLY, Circuit Judges.

LUMBARD, Chief Judge.

This appeal presents the question whether a creditor who, in his role as a director of and a stockholder in the debtor, induces the debtor to make a general assignment for the benefit of creditors is precluded from filing a petition in bankruptcy alleging the general assignment as an act of bankruptcy. We hold that he is.

On January 27, 1959, Harold Bowley and James Travers (herein the sellers) sold an insurance brokerage business to Bowley & Travers, Inc. (herein B & T) for $32,500, $10,000 in cash and a series of promissory notes for the balance. All the stock of B & T was issued to Irving Dinerman but his brother, Samuel Dinerman, had a 25% interest therein. The stock was deposited in escrow as security for the payment of the purchase price.

B & T defaulted in payment of the note which became due on July 26, 1960 and the default continues. After stalling the sellers' attempts to regain possession of the B & T stock held in escrow, B & T's board of directors, of which Samuel and Irving Dinerman were members, orally voted on December 27, 1960 to execute a general assignment for the benefit of creditors. The Dinerman brothers then resigned as officers and directors. At the shareholders' meeting held the same evening as the directors' meeting, the Dinermans voted for the assignment, and it was made on January 3, 1961. Since the Dinerman brothers were no longer officers of the corporation, they did not sign the general assignment. On January 9, 1961 Samuel Dinerman, who was also a creditor of B & T, filed an involuntary petition in bankruptcy against B & T, alleging the general assignment as the act of bankruptcy.

B & T, now under the sellers' control, alleges that the Dinermans have misappropriated B & T's assets, and resists the bankruptcy proceedings on two principal grounds. First, it alleges that since Samuel Dinerman participated in the act of bankruptcy, he is estopped from acting as a petitioning creditor. Second, it alleges that the general assignment is invalid and that there has thus been no act of bankruptcy. Judge Bartels granted B & T's motion for summary judgment dismissing the petition, holding that Samuel Dinerman was disqualified as a petitioning creditor but making no finding as to whether the general assignment was valid or invalid. Samuel Dinerman appeals from Judge Bartels' order dismissing the petition in bankruptcy, and B & T cross-appeals from Judge Bartels' failure to find the general assignment invalid. Since we agree that Samuel Dinerman was disqualified from acting as a petitioning creditor, we find it unnecessary to pass upon the validity of the general assignment.

Previous to 1938 there was no mention in the Bankruptcy Act that any creditor of a bankrupt might be precluded from acting as a petitioning creditor because of his previous activities. However, the courts early held that participation in a general assignment for the benefit of creditors might disqualify a creditor from initiating bankruptcy proceedings, but they disagreed on the extent of participation that was necessary to produce such disqualification. Some courts took the extreme view that filing a claim with the assignee was sufficient, In re Kootenai Motors Co., 41 F.2d 399 (D.Idaho 1930), while others required the filing of a claim plus the receipt of a dividend or passive acquiescence over some period when expenses were incurred or active participation in the assignment proceedings. E. g., Simonson v. Sinsheimer, 95 F. 948 (6 Cir. 1899); Ohio Motor Car Co. v. Eiseman Magneto Co., 230 F. 370 (6 Cir.), cert. denied, 241 U.S. 673, 36 S.Ct. 7, 24, 60 L.Ed. 1231 (1916); Utz & Dunn Co. v. Regulator Co., 213 F. 315 (8 Cir. 1914); In re McKinnon Co., 237 F. 869 (E.D.N.C.1916); see also Publishers Distributing Corp. v. J. Louis Motz News Co., 238 F.2d 617 (6 Cir. 1956) (per curiam). But the courts were virtually unanimous in holding that a creditor who participated in the act of bankruptcy itself, such as by inducing a general assignment, as contrasted with a creditor who merely participated in assignment proceedings already begun, was precluded from acting as a petitioning creditor. E. g., Clark v. Henne & Meyer, 127 F. 288 (5 Cir. 1904); In re Kupfer, 4 F. Supp. 688 (S.D.N.Y.1933); see also In re Taylor House Ass'n, 209 F. 924, 925 (N.D.N.Y.1913); Matter of Lucey Mfg. Co., 9 F.2d 313 (2 Cir. 1925).

In 1938 Congress added § 59, sub. h to the Bankruptcy Act.¹ 11 U.S.C.A. § 95, sub. h. This section does not define the conditions which would preclude a creditor from...