Fitzgerald v. Marshall
| Decision Date | 22 April 1958 |
| Docket Number | Civ. A. No. 5841. |
| Parties | Thomas J. FITZGERALD, as Trustee of the Estate of The Marshall Company, Bankrupt, Plaintiff, v. Vernon V. MARSHALL, Charles Andrews, Maurice N. Marshall and Chet Marshall, Defendants. |
| Court | U.S. District Court — District of Colorado |
John W. Low, Denver, Colo., for plaintiff.
Sidner, Lee, Gunderson & Svoboda, Fremont, Neb., and Harold D. Torgan, Denver, Colo., for defendants.
This is an action brought under Section 70 of the Bankruptcy Act, 11 U.S. C.A. Sec. 110, by plaintiff, as trustee of the estate of the Marshall Company, a bankrupt, against the directors and principal officers of the Marshall Company. The complaint alleges that the defendants declared and paid a dividend on the stock of the company at a time when the company was insolvent, or that the dividend diminished the amount of the capital stock of the company, and that by virtue of Section 31-2-12, C.R.S. 1953, the defendants thereby became jointly and severally liable for all of the debts of the Marshall Company.
Defendants Vernon V. Marshall and Maurice N. Marshall filed a motion to dismiss complaint on the grounds that the action does not involve diversity of citizenship. Those two defendants were the only ones served with process and the parties stipulated that Vernon V. Marshall is a legal resident and citizen of Nebraska and that Maurice N. Marshall is a legal resident and citizen of Colorado.
During the argument on the motion to dismiss, defendants raised the point that the trustee has no authority to bring this action since it is not the type contemplated by Section 70, sub. e(1). This point was argued by both the counsel and counsel were granted further time to submit additional authorities supporting their respective views. That time has since expired and the matter is now ready for determination by the Court.
This latter issue, then, is whether the trustee of a bankrupt corporation has a cause of action against the directors of the corporation under the statutes cited above. In view of the Court's determination of this issue, no disposition need be made of the question concerning diversity of citizenship.
Section 70, sub. e(1) of the Bankruptcy Act, 11 U.S.C.A. Sec. 110, sub. e(1), is cited by plaintiff as giving him a cause of action against the directors under the state statute. That section provides as follows:
"A transfer made or suffered or obligation incurred by a debtor adjudged a bankrupt under this title which, under any Federal or State law applicable thereto, is fraudulent as against or voidable for any other reason by any creditor of the debtor, having a claim provable under this title, shall be null and void as against the trustee of such debtor."
The above section merely gives the bankruptcy trustee affirmative power to avoid the transfers, obligations, or encumbrances specified therein. Although the liability which plaintiff seeks to impose on the directors in the instant action is based on a dividend they allegedly declared, plaintiff is not seeking to avoid a fraudulent transfer, or obligation, and consequently this section of the statute has no application to this suit.
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