Feiring v. Gano

• Citation: 168 P.2d 901,114 Colo. 567
• Decision Date: 08 April 1946
• Docket Number: 15292.
• Parties: FEIRING v. GANO.
• Court: Supreme Court of Colorado

168 P.2d 901

114 Colo. 567

FEIRING v. GANO.

No. 15292.

Supreme Court of Colorado, in Department.

April 8, 1946

Error to District Court, City and County of Denver; Henry S Lindsley, Judge.

Action by Michael Feiring, as trustee in bankruptcy of Multiposter Advertising Corporation, bankrupt, against Merritt W. Gano Jr., to recover the value of stock and a sum of money which defendant allegedly unlawfully acquired while an officer of the bankrupt. To review a judgment insofar as it was adverse to plaintiff, plaintiff brings error.

Modified and, as modified, affirmed.

Bankruptcy trustee, in action to recover value of a voidable preference was entitled to recover interest at statutory rate from date of commencement of action.

Alexander H. Rockmore, of New York City, and Robert L. Gee and S. Arthur Henry, both of Denver, for plaintiff in error.

Robert J. Pitkin and Frederick P. Cranston, both of Denver, for defendant in error.

KNOUS Chief Justice.

Herein the parties are aligned as in the trial court and reference will be made to them respectively as plaintiff and defendant. The action was brought by plaintiff the trustee in bankruptcy of Multiposter Advertising Corporation, a New York corporation, duly adjudged a bankrupt on May 26, 1939, by the United States District Court for the Southern District of New York, to recover from defendant, who, during the times herein involved, was an executive officer of such company, (1) the sum of $2500, the asserted value of 200 shares of the stock of Multiposter, which the stockholders and directors voted on March 10, 1938, to issue to defendant, and (2) the additional sum of $2700 allegedly transferred and paid unlawfully by the corporation to defendant on October 19, 1938, on which date it was averred it either actually or imminently was insolvent. Plaintiff made the transaction involving the $2500 item, said to have been a fraudulent transfer, the subject of the first cause of action, and in the second, third and fourth causes of action of his complaint separately pled alternative grounds for the recovery of the $2700 as a voidable preference. In course, the district court, Judge Walsh presiding, overruled plaintiff's motion for summary judgment. In the subsequent trial the court, Judge Lindsley presiding, after denying plaintiff's motion for judgment on the pleadings, premised on the same contentions previously advanced in his motion for summary judgment, found for defendant on the first and third causes of action and for plaintiff on the second and fourth, but fixed the amount of the preference recoverable from defendant at $500 instead of $2700 as prayed for. Plaintiff, specifying the foregoing rulings, adverse to him, as points for reversal, brings the case here for review. By cross specifications of points defendant asserts the court erred in adjudging 'that the amount of the alleged preference was five hundred dollars or that it was any amount in excess of one dollar, nominal damages.'

Plaintiff's motions for summary relief were based upon the following state of the pleadings: The complaint alleged, and the answer admitted, that defendant filed proof of claim for $15,150 against the estate of bankrupt Multiposter; that plaintiff, as trustee in bankruptcy, formally made and served objections thereto under section 57 of the Bankruptcy Act, 11 U.S. C.A. § 93, praying that defendant's claim be disallowed unless he repaid to the estate the sum of $5200 received by him unlawfully as a transfer and preference voidable under the Bankruptcy Act and that that $5200 included and represented the causes of action of plaintiff's complaint herein, i.e., $2500 plus $2700; that after notice from the Bankruptcy Court and continuances therein, defendant defaulted; that the Referee in Bankruptcy on August 29, 1940, entered an order sustaining plaintiff's objections to defendant's claim unless defendant should surrender the sum of $5200 'received by him as a preference, conveyance, transfer and assignment voidable under the Bankruptcy Act,' within ten days after service of a copy of the order; that he was served with a copy thereof and that he never has paid or surrendered to plaintiff the sum of $5200 or any part thereof. It is conceded that no review of the referee's order was attempted and that the time therefor has expired.

Plaintiff asserts, as a matter of law, that in the situation thus portrayed, the order of the referee in bankruptcy was res judicata as to the following facts: (a) A fraudulent transfer was made to defendant and a voidable preference received by him; and, (b) that the amount thereof in combination was $5200. Hence, it is argued, that since neither of these questions properly could again be litigated in the present action, plaintiff was entitled to summary judgment or judgment on the peladings for the full amount of the recovery sought by him under the complaint.

The basic principle underlying plaintiff's contention is stated succinctly in the opinion in Wiswall v. Campbell, 93 U.S. 347, 351, 23 L.Ed. 923, as follows: 'Every person submitting himself to the jurisdiction of the bankrupt court in the progress of the cause, for the purpose of having his rights in the estate determined, makes himself a party to the suit, and is bound by what is judicially determined in the legitimate course of the proceeding.'

Defendant concedes, as unquestionably is the law (see, Remington on Bankruptcy, 4th Ed., vol. 5, p. 461, § 2313; 6 Am.Jur., p. 590, § 134, and 8 C.J.S., Bankruptcy, § 444, p. 1314, that the referee's order of disallowance of a claim because of an unsurrendered preference or transfer is conclusive in subsequent proceedings as to the existence of the voidable preference or transfer on account of which the claim was disallowed, but insists that it is not res judicata as to the amount or value thereof.

We have never Before been called upon to decide the latter point. The reported cases from other jurisdictions in which the question has been considered are not in accord. After so noting, the trial court, but not without expressing some perplexity, finally upheld the position of defendant as last above stated. We have concluded that this decision should be sustained. In making this determination we are not unmindful of the fact that certain pronouncements of the respected United States Court of Appeals for the Second Circuit in its opinion in Schwartz v. Levine & Malin, Inc., 2 Cir., 111 F.2d 81, the most recent case cited on the point (1940), seem to be in direct opposition to our above announced conclusion. In addition to that decision plaintiff cites other cases. including Moore v. Breit, D.C., 211 F. 687; Breit v. Moore, 9 Cir., 220 F. 97; Lincoln v. People's National Bank, D.C., 260 F. 422; Ullman, Stern & Krausse v. Coppard, 5 Cir., 246 F. 124; 158 C.C.A. 350; Blanks v. West Point Wholesale Grocery Co., 225 Ala. 74, 142 So. 49; and Irving Trust Co. v. Frimitt, D.C., 1 F.Supp. 16, as directly or inferentially supporting his contention that the referee's order was res judicata as to both the existence of the voidable preference and transfer and the amount or value thereof.

On the other hand and seemingly with better reason, considering the language of the statute, section 57, sub. g, of the Bankruptcy Act, 11 U.S. C.A. § 93, sub. g., providing for the disallowance of creditors' claims until voidable preferences or transfers are surrendered, a number of decisions unequivocally support the view we have taken. Typical of these is Shea v. Falls Canning Co., 231 A.D. 535, 247 N.Y.S. 766, wherein it is stated in the syllabus in the Appellate Division report: 'The order of the referee in bankruptcy, declaring a preference and disallowing the claim of the defendant in a specific sum, is not res judicata as to the value of the merchandise transferred to the defendant in a subsequent action by the trustee in bankruptcy to recover a preference. In a case of this character, the referee was not called upon to decide the question of the value of the goods, and his sole duty ended in holding that there was a preference. The value of the goods may be litigated at a subsequent trial.'

In general accord with that tenet are Metz v. Knobel, 2 Cir., 21 F.2d 317, and Woods v. Rapoport, 128 Wash. 140, 222 P. 220. Inferentially supporting this theory upon the basis that the jurisdiction of the referee in cases of this character does not extend beyond a simple determination of whether the creditor has received or acquired preferences, void or voidable under the Bankruptcy Act, are In re Marmolstein, D.C., 13 F.Supp. 396; In re Florsheim, D.C., 24 F.Supp. 991, and Triangle Electric Co. v. Foutch, 8 Cir., 40 F.2d 353.

Also as we apprehend, our conclusion is fortified substantially by the circumstance that in both Remington on Bankruptcy and Corpus Juris Secundum the appraisal of the authorities by the author and editors is consonant with our determination. Conformably, it is stated in the first, 4th Ed., vol. 5, p. 461, § 2313; 'And the referee's order of disallowance of a claim because of an unsurrendered preference is res judicata only as to the existence of the preference, * * * and not as to the amount of the preference.' In 8 C.J.S., Bankruptcy, § 444, p. 1316 we find the statement: 'An order of disallowance, unless claimant surrenders a preference or transfer which he has been found to hold, does not operate as a personal judgment absolutely binding him to return the preference or transfer to the trustee, but only requires such surrender as a condition of allowance; nor is it conclusive as to the value of the goods or property found to be held by claimant, as the only question necessarily involved and determined was whether or not there was a voidable preference or...