E. B. Badger Co. v. Arnold, 1519.

• Decision Date: 29 November 1921
• Docket Number: 1519.
• Citation: 282 F. 115
• Parties: E. B. BADGER CO. et al. v. ARNOLD et al. In re WINNISIMMET SHIPYARD, Inc.
• Court: U.S. Court of Appeals — First Circuit

282 F. 115

E. B. BADGER CO. et al. v. ARNOLD et al.

In re WINNISIMMET SHIPYARD, Inc.

No. 1519.

United States Court of Appeals, First Circuit.

November 29, 1921

On Rehearing June 27, 1922.

On Rehearing.

Anderson Circuit Judge, dissenting.

Mark M Horblit, of Boston, Mass. (Jacob Wasserman, Victor Levine and Horblit & Wasserman, all of Boston, Mass., on the brief) for appellants.

Edmund K. Arnold, of Boston, Mass. (Peabody, Arnold, Batchelder & Luther, of Boston, Mass., on the brief), for appellees.

Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

BINGHAM Circuit Judge.

This is an appeal from a decree of the District Court for Massachusetts dismissing a petition in bankruptcy brought by G. R. Armstrong Manufacturers' Supplies, Inc., a Massachusetts corporation, Bernard Sackovitz, a citizen of Massachusetts and E. B. Badger & Sons Company, a Massachusetts corporation, against the Winnisimmet Shipyard, Inc., a Massachusetts corporation. The petition contains the following allegation:

'And your petitioners further represent that said Winnisimmet Shipyard, Inc., is insolvent, and that within four months next preceding the date of this petition the said Winnisimmet Shipyard, Inc., committed an act of bankruptcy, in that heretofore, to wit, on or before the 24th day of November, 1920, because of insolvency, Edmund K. Arnold of Boston, Mass., and William R. Green, of Boston, Mass., were appointed receivers and put in charge of the property of said corporation under the laws of the United States.'

The petition was filed March 24, 1921. April 7, 1921, Edmund K. Arnold and William R. Green, the receivers appointed under the laws of the United States by the District Court of Massachusetts for the Winnisimmet Shipyard, Inc., on the 24th day of November, 1920, and certain creditors of the Winnisimmet Shipyard, Inc., filed motions to dismiss the petition, assigning as reasons therefor:

'1. Said petition on its face does not state any facts upon which an adjudication in bankruptcy can be granted herein.

'2. The first ground upon which the involuntary petition is filed is the appointment of receivers of the property of the alleged bankrupt. Said appointment was made by decree of this honorable court in Crandall Engineering Company, a Maine corporation, against Winnisimmet Shipyard, Inc., a Massachusetts corporation, Equity No. 1044, The proceedings in said equity case are hereby referred to and made a part of this motion. As appears from the face of said bill in equity and by examination of said bill, it affirmatively appears that no act of bankruptcy has been committed by the alleged bankrupt.'

The petitioners state in their assignment of errors that the court ruled (1) that in determining whether the receivers were put in charge of the property of the alleged bankrupt because of insolvency the court could not consider evidence outside the record in the equity suit wherein said receivers were appointed; (2) that the sufficiency of the petition may be raised on a motion to dismiss even though said motion to dismiss is based on matters of record in another suit pending in the District Court; and (3) that the court could take judicial notice of the record in the equity suit pending in the District Court-- and erred in so ruling.

Equity rule 29 provides that:

'Every defense in point of law arising upon the face of the bill, whether for misjoinder, nonjoinder, or insufficiency of fact to constitute a valid cause of action in equity, which might heretofore have been made by demurrer or plea, shall be made by motion to dismiss or in the answer. * * * '

It must be conceded that if the petition fails to state facts sufficient to authorize a decree of adjudication the question of its sufficiency may be tested by a motion to dismiss. The motion admits all facts definitely pleaded, but not mere conclusions of the pleader. In re Rosenblatt & Co., 193 F. 638, 113 C.C.A. 506; In re Connecticut Brass & Mfg. Corporation (D.C.) 257 F. 445. The allegation that the Winnisimmet Shipyard, Inc., was insolvent is indefinite and at most a mere conclusion of the pleader. The petition should have alleged facts showing that the company's assets, at a fair valuation, were insufficient in amount to pay its debts, for the establishment of such facts are essential to a decree of adjudication under the Bankruptcy Act of 1898 (Comp. St. Secs. 9585-9656). In re Butler & Co., Inc., 207 F. 705, 125 C.C.A. 223.

As the petition failed to allege facts showing that the assets of the Winnisimmet Shipyard, Inc., at a fair valuation, were not sufficient in amount to pay its debts, the petition was properly dismissed, unless the reference in the petition to the appointment of the receivers in the equity cause incorporated the record in that case as an allegation in the petition and thereby showed that the Winnisimmet Shipyard, Inc., was insolvent in fact, and because of such insolvency was put in the hands of receivers. We think it may fairly be said that the allegations of the petition are such as to incorporate the record in the receivership proceeding. But, however this may be, the petitioners cannot complain, for it gives them the advantage of such a course of action if any advantage is to be derived from it. Such being the case the District Court was not called upon to take judicial knowledge of the receivership proceeding or rule on the admissibility of evidence, and we do not regard the case as presenting any such questions.

In the equity proceeding it was alleged in the bill that the Winnisimmet Shipyard, Inc., owed about $780,000; that it had quick assets of about $335,000 and fixed assets of about $1,250,000; that it was unable to meet its obligations as they matured in the ordinary course of business; and that its property would be wasted and great value lost unless a receiver was appointed to conduct the business. The answer admitted the allegations of the bill and a decree entered on November 24, 1920, stated that:

'Upon consideration of the bill of complaint and the answer thereto, it appearing therefrom that the defendant's property at a fair valuation is sufficient in amount to pay its debts, but that it is unable to meet its obligations as they mature in the ordinary course of business, and that its property may be wasted and great value be lost unless a receiver be appointed of its property, and that the uninterrupted operation of its plant is essential to the public interest, now therefore * * * it is

'Ordered, adjudged, and decreed that Edmund K. Arnold, of Boston, and William R. Green, of said Boston, be and they hereby are appointed (temporary) receivers of all the assets and property of the defendant wheresoever situated,' etc.

The decree also directed the receivers to take possession of all the assets and property of the defendant wherever situated and to carry on its business 'until further order of the court,' and it was ordered that 'notice of this proceeding be given to all persons interested by publication of this order in two daily newspapers published in Boston, Mass., and by mailing a copy of this order to every creditor of the defendant as its address appears upon the defendant's books, to appear before this court at 10 o'clock a.m. on Thursday, December 2, 1920, to show cause why such receivership should not be continued. ' And on December 2, 1920, the order of notice having been returned, and no one appearing by person or by counsel who desired to be heard in opposition to the continuation of the receivership, it was continued by force of the original decree.

As the record in the receivership proceeding shows that the Winnisimmet Shipyard, Inc., was not put in the hands of receivers because it was insolvent in fact, but because it was unable to meet its obligations as they matured, its incorporation in the petition does not supply the necessary allegations. On the contrary, it shows definitely that the facts essential to establish the act of bankruptcy contemplated by the provisions of the statute here relied upon are wanting.

The decree of the District Court is affirmed, with costs to the appellees.

On Rehearing.

Since our opinion was handed down in this case on November 29, 1921, an application for rehearing has been made and a rehearing had, and we are satisfied that in our former opinion we placed too strict an interpretation upon the allegation of insolvency contained in the bankruptcy petition, and are also satisfied that the decree in the equity receivership case is not incorporated by reference in the petition, and that the allegations as to the insolvency of the defendant and the act of bankruptcy relied upon are sufficiently definite.

There remains, therefore, for us to consider the scope of a motion to dismiss filed under equity rule 29 (198 F. xxvi, 115 C.C.A. xxvi), and whether the second paragraph of the motion sets forth matter...