Coffey v. Managed Properties

• Decision Date: 23 July 1936
• Docket Number: No. 338.,338.
• Citation: 85 F.2d 88
• Parties: COFFEY v. MANAGED PROPERTIES, Inc., et al.
• Court: U.S. Court of Appeals — Second Circuit

85 F.2d 88 (1936)

COFFEY v. MANAGED PROPERTIES, Inc., et al.

No. 338.

Circuit Court of Appeals, Second Circuit.

July 23, 1936.

Strange, Myers, Hinds & Wight, of New York City (Roger Hinds, of New York City, of counsel), for appellant Managed Properties, Inc.

Victor R. Carpenter, of Mount Vernon, N. Y. (Bern Budd and Frederick F. Hufnagel, both of Bronxville, N. Y., of counsel), for appellee William S. Coffey, as Trustee in Bankruptcy of estate of Frank R. Pierson.

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

Frank R. Pierson owned two plots of land in Buffalo, N. Y., on one of which there was a mortgage of $43,000 to Betsy Smith, which by January 31, 1934, had by payments been reduced to $5,750. On that date Pierson executed a mortgage to the defendant Hitchings & Co. to secure payment of $25,000. The $25,000 mortgage covered both plots and was made subject to the prior mortgage to Betsy Smith on one of them. The defendant Hitchings & Co., already held a mortgage upon certain land and greenhouses in Westchester county, N. Y., which it had received from the defendant Pierson Parkway Greenhouses, Inc., as security for the latter's notes. The notes were made payable to the order of Pierson, bore his indorsement, and, by January 31, 1934, had been reduced to $43,000. The notes and mortgages represented a balance owing to Hitchings & Co. upon the sale of the greenhouses and land to Pierson Parkway Greenhouses, Inc. The mortgage for $25,000 on the Buffalo lots was given by Pierson as alternative collateral in exchange for his liability as indorser on the notes of the Pierson Parkway Greenhouses, Inc. On May 6, 1935, Hitchings & Co. assigned the $25,000 mortgage to Managed Properties, Inc.

On February 26, 1934, Marion E. Hewson, holder at that time of the mortgage formerly belonging to Betsy Smith, began a foreclosure of the mortgage, which covered one of the Buffalo plots, and on July 25, 1934, assigned the mortgage to the defendant Starck, a nominee of Hitchings & Co., who was substituted as plaintiff in the foreclosure suit. At the foreclosure sale he purchased the plot covered by the mortgage, on November 5, 1934, received the referee's deed therefor, and on March 11, 1935, conveyed it to defendant, Managed Properties, Inc., which was a wholly owned subsidiary of Hitchings & Co. On August 28, 1934, the latter company began suit to foreclose its mortgage on the Westchester Greenhouses, on January 30, 1935, bought the property at the foreclosure sale, and on May 4, 1935, transferred the title to Managed Properties, Inc.

On June 8, 1934, an involuntary petition in bankruptcy was filed against Pierson, on September 18 following he was adjudicated a bankrupt, and on September 27 the complainant William S. Coffey became trustee. He brought the present suit alleging the foregoing facts in the bill of complaint, alleging that Pierson was insolvent at the time when the mortgage for $25,000 was given and also alleging that Hitchings & Co. then had reasonable cause to believe that such insolvency existed. The complaint further alleged that the mortgage on the Buffalo property for $25,000 was given without consideration, that the Buffalo lots were worth upwards of $60,855, and that the greenhouses and lots which had been bid in for a nominal sum were actually worth upwards of $100,000. The bill of complaint further alleged that the procurement of the mortgage was fraudulent and was for the purpose of creating an unlawful preference, and prayed that the $25,000 mortgage and the conveyances of the Buffalo properties to Starck and Managed Properties, Inc., be declared unlawful, that the Buffalo properties be decreed to belong to the complainant as trustee for the bankrupt's estate, and that the defendants be ordered to account for any rents. Upon the bill and a petition and affidavits the trustee moved for a preliminary injunction.

From the papers submitted on the motion it appeared that after the making of the $25,000 mortgage and before the bankruptcy petition was filed, Pierson had conveyed all the Buffalo lots (subject to the mortgage to Betsy Smith on one of the plots) to one John W. Smith in trust for certain of Pierson's employes. The deed to John W. Smith was attacked in a suit by the trustee, but that suit was settled, with the approval of the court, and Smith conveyed an undivided one-half of the lots to the trustee in bankruptcy. Upon the foregoing facts the court granted a preliminary injunction restraining Managed Properties, Inc., from selling or encumbering the Buffalo property and from assigning, encumbering, or enforcing the $25,000 mortgage. From the order granting the injunction the present appeal was taken. We think that an injunction pendente lite should not have issued.

The first objection to the order of the court below is lack of jurisdiction of the cause for the reason that the land affected is in Buffalo (in the Western District of New York) and the suit, therefore, was a local one and should have been brought in the Western District. But the remedy sought is under section 70e of the Bankruptcy Act (11 U.S.C.A. § 110 (e), namely, to reach property transferred in fraud of creditors.

Subdivision (e) of section 70 reads thus: "For the purpose of such recovery any court of bankruptcy as hereinbefore defined in this title, and any State court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction."

Whether, in view of section 54 of the Judicial Code (28 U.S.C.A. § 115), authorizing the bringing of local actions in the district where property is situated, section 70e is broad enough to cover actions by the trustee such as ejectment or replevin directly operating on land or chattels, we need not say, and whether the District Court for the Southern District of New York could order the cancellation of a lis pendens filed in Erie...