Beneficial Corp. v. Barker

• Decision Date: 29 December 1977
• Docket Number: No. 77-0797-CV-W-2.,77-0797-CV-W-2.
• Citation: 445 F. Supp. 101
• Parties: BENEFICIAL CORPORATION, Plaintiff, v. Honorable Frank P. BARKER, Jr., George H. Clay, and ISC Financial Corporation, Defendants.
• Court: U.S. District Court — Western District of Missouri

445 F. Supp. 101

BENEFICIAL CORPORATION, Plaintiff, v. Honorable Frank P. BARKER, Jr., George H. Clay, and ISC Financial Corporation, Defendants.

No. 77-0797-CV-W-2.

United States District Court, W. D. Missouri, W. D.

December 29, 1977.

Harry P. Thomson, Jr., Shugart, Thomson & Kilroy, P.C., George E. Leonard, Jennifer A. Gille, George A. Barton, Kansas City, Mo., for plaintiff.

F. Philip Kirwan, Norman M. Arnell, Margolin & Kirwan, Kansas City, Mo., for defendants Judge Barker and Clay.

Gene A. DeLeve, Berman, DeLeve, Kuchan & Chapman, Kansas City, Mo., for defendant ISC Financial Corp.

MEMORANDUM OPINION AND JUDGMENT DISMISSING COMPLAINT

COLLINSON, District Judge.

The factual background of this case is as follows: The ISC Financial Corporation owned a subsidiary corporation known as Interstate Securities Company, which was engaged in the consumer loan business. In March, 1977 the major portion of its "finance receivables," consisting of loan accounts and installment sale contracts, were sold to Beneficial Corporation. Various forms of insurance had been written in connection with these finance receivables, which apparently consisted of insurance on the consumer goods which secured the loans and credit life insurance policies on the borrowers' lives. This insurance had been written by insurance companies which were also subsidiaries of ISC Financial Corporation. Beneficial was justifiably suspicious of the financial soundness of these companies and, as part of the transaction, ISC guaranteed to Beneficial the payment by these companies of all unearned premiums and claim losses on the insurance coverage connected with the finance receivables purchased by Beneficial.

To secure this guarantee ISC pledged to Beneficial all of the capital stock of Anchor Savings Association owned by ISC (over 99% of the stock of the Association) and delivered physical possession of the stock to Beneficial in accordance with the terms of the pledge agreement. The life insurance companies whose payments were thus guaranteed later went into receivership and numerous checks written to Beneficial by these companies have been dishonored.

On September 7, 1977 ISC filed a petition under Chapter XI of the Bankruptcy Act and listed these pledged shares of stock as assets pledged as collateral security to Beneficial under the above agreement.

Under the local rules of this district that petition was assigned to Division 3 of this Court, over which Chief Judge John W. Oliver presides, and was automatically referred and assigned under the local rules to the Honorable Frank P. Barker, Jr., Bankruptcy Judge. On September 7 and September 15, 1977 Judge Barker entered orders stating that —

"The filing of the petition by the debtor above named operates as a stay of the commencement or continuation of any court proceeding against the debtor, or the enforcement of any judgment against it, of any act or the commencement or continuation of any court proceeding to enforce any lien on the property of the debtor, and of any court proceeding commenced for the purpose of rehabilitation of the debtor or the liquidation of its estate as provided by Rule 11-44."

Of course, this order follows the exact wording of Rule 11-44 and does not enlarge in any way the provisions of that rule, which states that the filing of the petition alone operates as such a stay.

Beneficial Corporation has filed this complaint in three counts, naming as defendants Judge Frank P. Barker, Jr., George H. Clay, the duly appointed receiver of the debtor in the Chapter XI proceedings, and ISC Financial Corporation, the petitioning debtor corporation.

The first count of the complaint seeks a declaratory judgment that the bankruptcy judge of the bankruptcy court has no jurisdiction over the Anchor Savings Association stock or this plaintiff and that, if any such jurisdiction does exist, it is a limited jurisdiction and cannot be exercised to prevent the giving of notice of default and demand for performance by the plaintiff to the debtor and the debtor's receiver; and does not prevent and cannot prevent the disposition of the Anchor Savings Association stock under the pledge agreement. Plaintiff further seeks a declaration that, after giving such notice, the plaintiff may elect to retain all of the stock now held under the pledge agreement in discharge of the obligations of ISC. Plaintiff also prays for a declaration that Rule 11-44(a) of the Bankruptcy Rules of Procedure is unconstitutional as depriving the plaintiff of property rights without due process of law.

Count II prays for an injunction against Judge Barker and the receiver to prevent and prohibit them from interfering with the giving of the proposed notice of default and demand for performance to ISC and its receiver.

Count III is a request for a full plenary hearing and expedition of proceedings with respect to Count II.

Under the random assignment procedure provided by the local rules in this district, this case was assigned to Division 2 of this Court, which is presided over by the undersigned Judge. The three defendants have filed motions to dismiss this action for lack of jurisdiction, and this motion has been fully briefed by all the parties. The Court has also been favored by a brief from the Securities and Exchange Commission, which declares that it has a paramount interest in the Chapter XI proceedings, but filed its brief without application for or leave of court.

The plaintiff's arguments in support of its petition are lengthy and ingenious, but this Court finds little support for its position in the cases cited by it. The plaintiff does not discuss section 311 of the Bankruptcy Act, 11 U.S.C.A. § 711, which provides that the court in which the debtor's petition is filed has "exclusive jurisdiction of the debtor and his property, wherever located." In 1 Collier on Bankruptcy § 3.01(7), that eminent authority discusses section 311:

"In matters relating to bankruptcy, the power of Congress is paramount. Even in respect to property adversely claimed and not within the possession of the bankruptcy court, Congress can confer upon it jurisdiction to adjudicate a controversy involving the rights of the trustee to the property, by conferring jurisdiction over the person who has possession of the property. Congress also has the power, subject to constitutional guarantee, to determine to what extent jurisdiction conferred, whether through possession of the res or otherwise, shall be exercised in summary proceedings and to what extent in plenary suits. The summary jurisdiction of the bankruptcy court over `controversies arising in proceedings in bankruptcy' under Chapters I to VII has been enlarged by Sec. 311 in arrangement cases under Chapter XI."

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