Tamasha Town & Country Club v. McAlester Const. Fin. Corp.

• Decision Date: 08 March 1966
• Docket Number: Civ. A. No. 65-760.
• Citation: 252 F. Supp. 80
• Parties: TAMASHA TOWN AND COUNTRY CLUB, a California corporation, Plaintiff, v. McALESTER CONSTRUCTION FINANCE CORPORATION, a Delaware corporation, Construction Finance Corporation, a California corporation, et al., Defendants.
• Court: U.S. District Court — Southern District of California

252 F. Supp. 80

TAMASHA TOWN AND COUNTRY CLUB, a California corporation, Plaintiff, v. McALESTER CONSTRUCTION FINANCE CORPORATION, a Delaware corporation, Construction Finance Corporation, a California corporation, et al., Defendants.

Civ. A. No. 65-760.

United States District Court S. D. California, Central Division.

March 8, 1966.

COPYRIGHT MATERIAL OMITTED

Hamilton & Mueller, Richard D. Hamilton, Santa Ana, Cal., for plaintiff.

Paul, Hastings, Janofsky & Walker, Los Angeles, Cal., for defendants.

IRVING HILL, District Judge.

Plaintiff corporation sues as a debtor in possession under Chapter XI of the Bankruptcy Act. Its Complaint seeks treble damages under California Civil Code, § 1916-3, for payment of alleged usurious interest. There is no diversity. The Complaint cites, as the jurisdictional basis of the action, sections of the Bankruptcy Act involving both summary and plenary jurisdiction.^* For the reasons stated below, the motion must be granted.

In order to understand the jurisdictional issues, it is necessary to state in some detail the history and background of the action, all of which appears from the documents and transcripts submitted to the Court in connection with the instant motion. None of the facts are disputed.

The unhappy relationship between Plaintiff and Defendant commenced on July 22, 1961, when they signed an agreement whereby Plaintiff was to obtain a construction loan from Defendant. The note was secured by real estate of Plaintiff. It was guaranteed by certain individual guarantors and additionally secured by other real estate belonging to them. Within a few days after the loan agreement was signed, Plaintiff filed a declaratory judgment action in the Superior Court of San Diego County seeking a determination that the transaction was not usurious. After trial of that action, judgment was rendered on August 8, 1961, declaring the transaction to be non-usurious and payments under the loan agreement were made.

About a year later, on July 31, 1962, Plaintiff filed a Chapter XI proceeding in Bankruptcy in this District. On August 6, 1962, upon application of Plaintiff, the Referee issued an Order to Show Cause temporarily enjoining Defendant from foreclosing on any of Plaintiff's property. On the date set for hearing, Defendant appeared in opposition and asked that the restraining order be dissolved. By an Order of September 26, 1962, the Referee denied the request for dissolution of the restraining order. A petition for review of the Referee's Order was filed on October 3, 1962. The petition for review was denied by minute order dated December 27, 1962. An appeal was noted to the Court of Appeals for the Ninth Circuit.

On August 14, 1962, while Plaintiff's Order to Show Cause of August 6, 1962, was pending before the Referee, Defendant McAlester began an action in the Superior Court of Orange County against the guarantors of the note. It sought foreclosure of the property of the guarantors which had been pledged as additional security. Almost two years later, on April 30, 1964, McAlester secured a judgment against the guarantors in the Orange County action.

On May 20, 1963, while the Orange County action was pending against the guarantors, Defendant McAlester filed an Order to Show Cause before the Referee in Plaintiff's bankruptcy proceeding. In it, Defendant again sought to vacate the injunction which prevented it from foreclosing on Plaintiff's real property. Defendant's Order to Show Cause also sought a ruling that Plaintiff be adjudicated a bankrupt, authority to reclaim certain chattels, and an order requiring Plaintiff to post a bond and furnish an audit. This Order to Show Cause of May 20, 1963, should be especially borne in mind. It is alleged to be the basis of jurisdiction in this case.

At about the same time, Defendant McAlester dropped its appeal from the Referee's Order of September 26, 1962, and the Order of the District Court dismissing the petition for review. In lieu of this appeal, McAlester apparently desired to make a frontal attack on the Referee's restraining order by its Order to Show Cause of May 20, 1963.

At this point Plaintiff filed, on June 4, 1963, a document which it called a "Supplement" to its original application for an Order to Show Cause of August 6, 1962. Plaintiff's "Supplement" is in no sense an answer to Defendant's Order to Show Cause of May 20, 1963. The "Supplement" sought to continue in effect the injunction stemming from the Plaintiff's Order to Show Cause of August 6, 1962, until the Referee determined a claim of usury raised by Plaintiff and the amount payable by Plaintiff to Defendant.

A hearing was held before the Referee on June 7, 1963. An examination of the transcript of that hearing makes it plain first, that all parties and the Referee were proceeding on the original application of Plaintiff Tamasha as "supplemented", and on the issues framed therein; and second, that the matters raised by Defendant McAlester in its Order to Show Cause of May 20, 1963, were not heard or determined.

Following the hearing of June 7, 1963, the Referee filed a Memorandum Opinion on July 12, 1963, and a formal Order filed November 13, 1963. That Order recites that evidence was heard on the "Supplement to Application to Stay Enforcement of Lien" of Plaintiff. In it, the Referee fixed the amount owing by Plaintiff to Defendant (as requested by Plaintiff in its "Supplement") and ruled that Defendant McAlester could not foreclose on Plaintiff's property until some $31,000 additional principal was paid by it to Plaintiff. He also ruled that the original loan was usurious. He refused to be bound by the judgment in the San Diego County declaratory relief action, finding that it was collusive. The Referee determined that summary jurisdiction existed to try the usury issue.

After the June 1963 hearing on Plaintiff's Supplementary application, a hearing was brought on by the Referee's own motion on November 3, 1963, and the Referee on November 27, 1963, filed an Order continuing the debtor in possession, and reciting that Defendant McAlester's application "for adjudication of the debtor and other relief" in its Order to Show Cause of May 20, 1963, was denied.

McAlester on December 4, 1963, filed a petition for review of the Referee's earlier Order of November 13, 1963, stating inter alia that the Referee erred in concluding that he had summary jurisdiction, since McAlester had raised a timely objection thereto, and asserting that a plenary suit was required to try the issue of usury. On December 12, 1963, McAlester filed another petition for review of the Referee's later Order of November 27, 1963, continuing the debtor in possession. Both petitions for review were pending when the judgment against the guarantors on the note was rendered in the afore-mentioned Orange County Superior Court action on April 30, 1964. Both were still pending when the said judgment was satisfied by a written agreement of May 20, 1964.

On June 4, 1964, Judge Stephens entered an Order dismissing both said petitions for review on the stipulation of the parties, acting jointly, that the petitions for review and the Orders of the Referee involved in them, should be vacated as moot.

The instant action was filed May 20, 1965. In the Complaint, Plaintiff contends that it paid the funds used in satisfaction of the judgment against the guarantors and that its payment included payments of usurious interest, for which it now seeks treble damages.

There is also pending a standby State Court action in which the present issues can be determined if no federal jurisdiction is found.

An analysis of the jurisdictional problems here presented requires a definition and discussion of both summary and plenary jurisdiction as applied to bankruptcy matters, since both types of jurisdiction are claimed.

All bankruptcy jurisdiction is statutory. The term "summary jurisdiction" refers to jurisdiction specifically granted in the Bankruptcy Act¹ which a bankruptcy court (acting almost invariably through the Referee in Bankruptcy) exercises by "summary" proceedings. These proceedings are based on the use of petitions and orders to show cause, rather than formal pleadings.²

Summary jurisdiction includes three different categories: (1) "proceedings in bankruptcy"; (2) "controversies arising in proceedings in bankruptcy"; and (3) "other controversies between the bankrupt and a third party" not falling within (1) or (2) supra, but to which there is consent to summary jurisdiction. (2 Collier On Bankruptcy ¶ 23.02, p. 438, et seq.) Category (1) above, "proceedings in bankruptcy", is a term of art referring to matters of the administration of the bankrupt's estate, including the allowance of claims and the reduction of the estate to money. There is no contention that this category is involved in the instant case. Category (2) above, "controversies arising in proceedings in bankruptcy", is likewise a term of art referring to disputes concerning the property of the bankrupt in the actual or constructive possession of the Court. Category (3) above, "consent", involves situations where a party, by his own acts, is deemed to consent to the summary procedures of the Bankruptcy Court, waiving his right to the action being tried in an independent plenary suit in a court of appropriate jurisdiction. Such consent may be express, implied in law from a failure to assert an objection to summary jurisdiction,³ or implied in fact from the acts of the party alleged to have consented.⁴

In the instant case, Plaintiff claims that summary jurisdiction exists under Category (2) above, or by consent under Category (3), or both. As will be discussed infra, neither claim is well founded.

The term "plenary jurisdiction" refers to actions instituted in the District Court as contrasted with those instituted before the Referee in Bankruptcy. Plenary proceedings involve all of the normal attributes of court trial,...