Aldrich Shoe Co. v. Kagan

• Decision Date: 25 March 1949
• Docket Number: No. 4389.,4389.
• Parties: ALDRICH SHOE CO. v. KAGAN et al.
• Court: U.S. Court of Appeals — First Circuit

173 F.2d 457 (1949)

ALDRICH SHOE CO. v. KAGAN et al.

No. 4389.

United States Court of Appeals First Circuit.

March 25, 1949.

Harry Bergson, Jr., of Boston, Mass. (Harry Bergson and Bergson & Wolf, all of Boston, Mass., on the brief), for appellant.

Benjamin Goldman, of Boston Mass., for appellees.

Before MAGRUDER, Chief Judge, and CLARK¹ and WOODBURY, Circuit Judges.

CLARK, Circuit Judge.

This is an appeal by a creditor of a bankrupt against an order of a bankruptcy referee, affirmed by the district court, holding that certain sums deposited by the bankrupt with the Superior Court of Massachusetts for the County of Middlesex are the property of the trustee, rather than the creditor, and ordering the creditor to refrain from making any claim therefor. Jurisdiction was asserted under § 67, sub. a(4), of the Bankruptcy Act, 11 U.S.C.A. § 107, sub. a(4) — the new provision of the Chandler Act giving summary jurisdiction to the bankruptcy court of any proceeding by the trustee to hear and determine the rights of any parties under subd. a(1) of the section, which provides for the dissolution of judicial liens acquired on the bankrupt's estate during insolvency and within four months of bankruptcy. The order also stated that "the liens, if any, obtained" by the creditor upon the sums so deposited "are null and void by virtue of" this statute. The creditor attacks the order on the ground of lack of jurisdiction, asserting that it is at least the equitable owner of the sums in question and no lien is involved.

The bankrupt, Rolls-Kenardlee Corporation, was a corporation engaged in the manufacture of refrigeration units, which in February, 1946, negotiated with the creditor, Aldrich Shoe Company, to lease of the latter certain premises in the City of Cambridge, Massachusetts. The tenancy was to begin March 1, 1946, with the rental of $5,000 a year payable monthly at the rate of $416.67 in advance. Though the lease was never executed the bankrupt went into possession of the premises and paid the rent for the month of March. It failed to pay the rent due April 1 and the rent due May 1, 1946, and Aldrich started an action for ejectment in a state district court to obtain possession of the premises.

On May 31, 1946, the bankrupt filed a bill of complaint in the Superior Court for the County of Middlesex against Aldrich to enjoin the ejectment action and to compel the execution of a lease. A temporary restraining order having been issued the court held a hearing on June 7, 1946, as a result of which it entered an interlocutory decree continuing the restraining order in force and ordering the payment into court of certain sums of money. The specific direction was "that the plaintiff shall pay into the custody of the Clerk of this Court the sum of one thousand two hundred and fifty dollars (1,250.00) on Monday, June 10, 1946, and thereafter shall pay into the custody of said Clerk the sum of four hundred sixteen dollars and sixty-seven cents (416.67), the monthly rent due on premises in question, on the first day of each succeeding month, all of such sums to be held by the Clerk until further order of the Court." And failure to make any payment was to result in dissolution of the stay without further court order.

The first sum referred to, $1,250, was to cover the rent already due for April, May, and June. It was developed at the bankruptcy hearing later that Aldrich had sought payment of the rent to it if the restraining order was to be continued, that the plaintiff had objected that its claims for damages should offset the rental, and that the court had therefore ruled that the rental money should be paid into court to await its further decision.

The bankrupt paid the clerk $1,250 on June 10, $416.67 on July 1, and $416.67 on August 2, 1946; and the total, $2,083.34, is the sum here in dispute. Early in September a state court appointed a receiver of the bankrupt, and on September 17, 1946, a petition in bankruptcy was filed against it, resulting in the appointment of petitioner, Kagan, as trustee. Aldrich had filed a demurrer and an answer with a counterclaim for the rent in the superior court on July 5, 1946. Its demurrer was sustained by the superior court on November 4, 1946, and Aldrich then asked the court to enter a final decree ordering the clerk to pay it the sum of $2,083.34, "being the sum heretofore paid into Court by the plaintiff on account of the rent due defendant for the premises described in the plaintiff's bill of complaint." Thereafter the trustee filed its "petition to avoid any lien by legal proceedings obtained by Aldrich Shoe Company," upon which the order in question was entered.

The trustee's petition herein recited the facts; those controlling were admitted by Aldrich in its answer. The dispute is one of law. Upon the concessions of counsel, moreover, it was agreed that the referee could find as he did that the bankrupt was insolvent at the time of the first payment and continued so thereafter. Throughout the proceedings in the state court and in the court below, Aldrich continually insisted upon its claim to the deposits. Its position is succinctly set forth in its brief where it states its "contention that the title to the fund was vested in the Clerk of the Court for the benefit of Aldrich"; and in asserting that Aldrich had no lien, since "liens do not arise out of thin air," but "result from positive assertion of right by parties in action," it goes on to say, "But, nonetheless, a court of equity can force the transfer of title to property and to a sum of money, and such a change in the ownership of the title to the money was intended by the Superior Court." In line with this main contention it urges further that the particular issue is for the state superior court, not for the bankruptcy court.

The opposing claims are therefore that of equitable ownership upon the part of Aldrich and that of equitable lien dissolved by bankruptcy upon the part of the trustee. Since this is an issue of priority as to a fund paid to a third person by the bankrupt within four months of bankruptcy, it is for the federal, not the state, court. Clarke v. Larremore, 188 U.S. 486, 23 S.Ct. 363, 47 L.Ed. 555; Taylor v. Sternberg, 293 U.S. 470, 55 S.Ct. 260, 79 L.Ed. 599; Isaacs v. Hobbs Tie & Timber Co., 282 U.S. 734, 51 S.Ct. 270, 75 L.Ed. 645; Atlanta Flooring & Insulation Co. v. Russell, 5 Cir., 145 F.2d 493; Id., 5 Cir., 146 F.2d 884, certiorari denied Russell v. Atlanta Flooring & Insulation Co., 325 U.S. 862, 65 S.Ct. 1202, 89 L.Ed. 1983. But we do not see how the landlord can hope to win in any court. Of course, as it claims, the sums were ordered paid into the ...