Conway v. Union Bank of Switzerland
| Decision Date | 13 April 1953 |
| Docket Number | No. 174,Docket 22538.,174 |
| Citation | 204 F.2d 603 |
| Parties | CONWAY et al. v. UNION BANK OF SWITZERLAND et al. |
| Court | U.S. Court of Appeals — Second Circuit |
Oliver T. Cowan, New York City, for trustee.
William Gilligan, New York City, for debtor.
Leonard P. Moore, Rowland F. Kirks, Asst. Atty. Gen., Myles J. Lane, U. S. Atty., Southern District of New York, James D. Hill, George B. Searls and John F. Cushman, Attorneys, Department of Justice, Chadbourne, Parke, Whiteside, Wolff & Brophy, New York City, for Attorney General and Silesian Holding Co.
George Zolotar, New York City, Roger S. Foster, General Counsel, David Ferber, Sp. Counsel, Securities and Exchange Commission, Washington, D. C., Arthur A. Burck, Kiva Berke, New York City, of counsel, for Securities & Exchange Commission.
Lawrence J. McKay, New York City, Cahill, Gordon, Zachry & Reindel, New York City, William W. Dulles and Dudley B. Tenney, New York City, of counsel, for appellees.
Before SWAN, Chief Judge, and L. HAND and FRANK, Circuit Judges.
These are appeals by the Debtor, its Trustee and several other interested parties from an order of the bankruptcy court, dismissing for lack of jurisdiction the petition of the Trustee in reorganization under Chapter X of the Silesian-American Corporation, against four Swiss banks, which for convenience we shall call collectively "The Banks." The petition alleged that "The Banks." had got possession of large quantities of zinc ore and of the proceeds from the sale of such ore, for which they were accountable to the Debtor and it prayed that they should be required to account. The transactions are extremely complicated, as appears from our former opinion upon an appeal from an order confirming a plan of reorganization;1 but for the purposes of this appeal a much more summary statement will serve. In 1926 a German corporation, that we shall call "Erben," had sold to the Debtor all its interest in certain zinc deposits in Poland, the interest being in the form of shares in a Polish corporation, that we shall call "Spolka." In exchange for the "Spolka" shares the Debtor gave to "Erben" nearly half its own common, and over forty per cent of its preferred, shares. "Erben" borrowed largely from "The Banks," and as security pledged the shares in the Debtor that it had received in exchange for the "Spolka" shares. This took place in September 1939, shortly after which "Erben" was put into direct possession of the "Spolka" properties by the German occupation of Poland. "Erben" then arranged with "The Banks" for the shipment to them of zinc taken from the "Spolka" deposits, which "The Banks" either kept in kind, or sold under an agreement with "Erben" that the proceeds should be used to buy outstanding bonds of the Debtor, then selling at depressed prices. "The Banks" did buy $640,000 of these bonds which they held at the time of petition filed herein. "Erben" continued to ship zinc to "The Banks" and it was agreed that with the proceeds "The Banks" should continue to buy bonds and shares of the Debtor, as well as other securities issued by it. This effort was called a "repatriation" of "Spolka," apparently to indicate that the Polish deposits should go back into German ownership after "The Banks" had been paid their loans. After the bonds fell due on August 1, 1941, and the Debtor, being unable to pay them, went into this reorganization, "Erben" kept on shipping the zinc to "The Banks," with the proceeds of which, however, they were unable to buy bonds after June 14, 1941 because of a "freezing" order of our Treasury. In October, 1946, the bankruptcy court authorized the Trustee to pay a dividend of ten per cent upon the bonds, and "The Banks" signed and sent to the Central Hanover Bank and Trust Company a "Letter of Transmittal," directed to the Trustee's disbursing agent, the Guaranty Trust Company, accompanied by $640,000 of the bonds. This letter declared that the bonds were "presented to you for the purpose of receiving a partial distribution * * * as provided in an order * * * dated October 15, 1946"; and upon it the Central Hanover Bank received $64,000 to the credit of "The Banks." This money remained on deposit in the Central Bank to the credit of "The Banks" until March 30, 1951, when the Alien Property Custodian "vested" it in himself along with the bonds. On May 29, 1951, the Trustee filed a petition, reciting (1) that the order of October 16, 1946, under which the payment of $64,000 had been made had provided that it should not "constitute a waiver of any obligations, defenses, off-sets, grounds of subordination or cross-claims which may be asserted against any bondholders as to all of which, if any, full jurisdiction is reserved"; (2) that our opinion upon the earlier appeal had indicated "the possible existence of claims" against "The Banks" that "might constitute a set-off or counterclaim against" the bonds; (3) that there were "complete offsets and counterclaims" to the bonds; and (4) "that the 10% distribution on the $640,000 of bonds should not be made until after such objections, defenses, offsets, grounds of subordination, or cross claims had been heard and determined." Upon this petition the Central Bank was ordered to repay to the Trustee the sum of $64,000 on June 27, 1951, and did so, and the Trustee still retains it.
On April 30, 1949, a plan of reorganization had been filed on which hearings were held, and which Judge Clancy approved on April 3, 1950; but which we disapproved in December 1950, upon the appeal already mentioned.1 The chief reason for our disapproval was that we thought that the possibilities of recovery against "The Banks" — a release of which had been a condition of the plan — should be more thoroughly explored, in the hope that further examination might disclose that the chance of recovery was better than appeared from the record then before us. Apparently nothing of consequence took place after our decision until May 25, 1951, when the Trustee filed a petition praying that "The Banks" should file all claims against the Debtor that they might have of any sort whatever, or be barred from any share in the assets. (The petition also asked relief of a somewhat similar sort from "Erben"; but with this the present appeal is not concerned.) The grounds stated were that the bonds were "either the property of the Debtor or are claims against the estate of the Debtor to which there are complete offsets or counterclaims"; and that "it is necessary that persons claiming to have an interest in the bonds * * * be required to file a proof of claim, in order that the Trustee may know what other claims" (than his own) "are asserted with respect to the said bonds." The petition also alleged that "The opinion of the United States Court of Appeals * * * indicates the possible existence of claims" against "The Banks" "which might constitute a set-off or counterclaim against the $640,000 bonds, should it be determined that the Swiss Banks or Erzag have an interest in said $640,000 bonds." ("Erzag" was a corporate agent of "The Banks," which is not before us on this appeal.) Finally the petition alleged that the Alien Property Custodian recently had "vested" the bonds in himself under the Trading with the Enemy Act, 50 U.S.C.A.Appendix, § 1 et seq.; as he had (although this the petition did not allege) also "vested" the shares, common and preferred, in the Debtor, issued to "Erben" for the "Spolka" shares. The petition concluded by praying that "any party or claimant failing to file a proof of claim within the time to be fixed shall be barred from participating in any way in the assets of the Debtor, or under any reorganization of the Debtor with respect to said bonds."
"The Banks" were given notice of this petition, but did not appear; and on June 27, 1951, Judge Clancy passed an order, requiring them and all others interested to file their claims on or before September 15, 1951; and declaring that, if they failed, they should "be debarred from participation in any way in the assets of the Debtor or under any reorganization of the Debtor." "The Banks" filed no claim of any kind; and on December 27, 1951, the Trustee filed a voluminous petition, seeking recovery against them for their conversion of the zinc that "Erben" had delivered to them and for other wrongs against the Debtor. Notice was given to "The Banks" of this petition also, which they did not answer, but, instead, on February 27, 1951, moved to dismiss it on the ground that the court had never had such personal jurisdiction over them as would support a counterclaim; and that, if it ever had had, the "bar order" of June 27, 1951, had ended it on September 15, 1951, by their failure to file any claims. This motion came on to be heard before Judge Clancy, who dismissed the petition on June 17, 1952; and the appeal before us is from his order.
We agree with the Trustee that "The Banks" had made themselves parties to the reorganization proceeding. Indeed, we cannot see what more was necessary than the claim they had made in 1946 to the dividend of ten per cent, and the receipt of $64,000 by the Central Bank. There can be no more definitive act making one a party to a proceeding to distribute the assets of an insolvent among its creditors, than to claim and actually to receive one's proportional share in a distribution of its assets. That is precisely the purpose of such a proceeding and all that any creditor can get out of it. "The Banks'" only answer is that their claim was not in the form prescribed by § 57, sub. a of the Bankruptcy Act,2 by General Order 21(1), 11 U.S.C.A. following section 53, and by the local rules of the Southern District of New York. We may assume that these irregularities would justify the Trustee's returning the claims, and compelling "The Banks" to amend them; but that does not mean that no...
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