Foust v. Munson Lines

• Decision Date: 09 November 1936
• Docket Number: No. 19,19
• Parties: FOUST v. MUNSON S. S. LINES
• Court: U.S. Supreme Court

299 U.S. 77

57 S.Ct. 90

81 L.Ed. 49

FOUST

v MUNSON S. S. LINES.

No. 19.

Argued Oct. 15, 1936.

Decided Nov. 9, 1936.

Mr. Simone N. Gazan, of New York City, for petitioner.

Mr. Arthur M. Boal, of New York City, for respondent.

Mr. Justice BUTLER delivered the opinion of the Court.

Petitioner is the administrator of the estate of Coy E. Foust and, February 1, 1934, commenced an action at law under section 33 of the Merchant Marine Act of 1920¹ in the United States court for the Southern District of New York against the Munson Steamship Lines. His complaint alleges that, February 27, 1930, while deceased was at work for defendant as seaman on its steamship Mundelta, his death was caused by defendant's negligence and, for the benefit of petitioner as surviving father, prays damages in the sum of $15,000. Defendant's answer denies the negligence charged against it and alleges decedent's death was caused by risks assumed and his own negligence.

June 11, 1934, defendant filed its petition for reorganization under section 77B of the Bankruptcy Act.² The petition did not refer to the administrator's claim or to the action brought for its enforcement. Two days after it was filed, the court entered a decree that approved the petition as properly filed, declared the debtor unable to meet its debts as they mature, determined it required relief under section 77B, appointed trustees to take and operate its property and, inter alia, enjoined the institution or prosecution of any action at law against the debtor.

January 26, 1935, petitioner applied for leave to prosecute his suit and supported his application by an affidavit of his attorney suggesting: The debtor is covered by liability insurance; if petitioner gets judgment, he will sue insurer to enforce its liability under section 109 of the Insurance Law of New York (Consol.Laws, c. 28), as amended by Laws 1924, c. 639;³ the stay is unjust to the sur- viving father, gives no advantage to the debtor, and benefits only the insurer. The affidavit asserts that plaintiff is entitled to a jury trial and that prosecution of his action at law should not be stayed. The trustees by affidavit of one of their attorneys opposed petitioner's application but did not say that the debtor is not protected by insurance. The court denied petitioner's motion and ordered that a special master be appointed to report on the claim. Petitioner applied to the Circuit Court of Appeals for leave to appeal. After hearing the parties, it filed an opinion announcing that appeal would be granted but that the argument would be confined to the question whether the action can be stayed. Later the court entered an order unqualifiedly allowing the appeal. Meyer v. Kenmore Granville Hotel Co., 297 U.S. 160, 165, 56 S.Ct. 405, 80 L.Ed. 557.

After argument, limited as suggested, the court in its first opinion on the appeal held petitioner's claim provable and dischargeable and the District Court empowered to stay prosecution of the suit. In re Munson S.S. Lines (C.C.A.) 80 F.(2d) 859. Then there remained for consideration the question—which had not been argued—whether in the exertion of that power the District Court abused its discretion. The court suggested that, if, petitioner would stipulate not to use as a claim against the estate any judgment he might recover, there could be no objection to allowing his action to proceed. It held the appeal should not be finally determined without giving the parties a chance to present their views as to whether the District Court ought not to allow the action to proceed and directed that, if petitioner failed to file such a stipulation within a specified time, supplemental briefs would be received relating to the propriety of the exercise of the judicial discretion of the District Court. Petitioner having declined so to stipulate, the parties submitted their briefs. In his, petitioner stated that under the insurance policy the first $2,500 of petitioner's claim would be borne by the insured; that the value of the claim was not over $5,000; and that such stipulation would mean that the administrator would relinquish a substantial part of his claim. Upon consideration of the additional briefs the court in its second opinion on the appeal held that the District Court had not abused discretion, and affirmed the order. In re Munson S. S. Lines (C.C.A.) 82 F.(2d) 289.

As a reason in support of the stay, the first opinion states that jurors often return far larger verdicts in negligence cases than reason justifies, and that the trustees have a right to take that fact into account had not to accede to a method for the liquidation of tort claims that is unusual in bankruptcy unless the ordinary method of proof before a special master would imperil the claimant's rights. In its second opinion the court adopted and emphasized the fact stated in appellant's supplemental brief to the effect that the policy covered not over one-half the value of petitioner's claim. It decided that, as the debtor's estate had a substantial interest in the amount of the recovery, the District Judge did not abuse his discretion. The court said: 'That mode was more convenient and expeditious than any other and was plainly an advantage to the estate.' It added: 'If the claim had been fully covered by the insurance so that the carrier was primarily liable for the entire damage, we might have reached a different conclusion; but, under the circumstances, we think the determination of the court below was justified,' and affirmed the order appealed from.

The Circuit Court of Appeals rightly held petitioner's claim provable and dischargeable and the District Judge empowered to stay proceedings in the suit.

Section 77B gives to the District Judge power, to be exerted in accordance with its provisions, to alter the rights of creditors or any class of them. Subdivision (b)(10), § 77B (11 U.S.C.A. § 207(b)(10), declares the term 'creditors' shall include, for all the purposes of the section, the holders of claims of whatever character and whether or not they would otherwise constitute provable claims under the Bankruptcy Act; that the term 'claims' includes debts, securities, other than stock, liens, or other interests of whatever character. Subdivision (h), 11 U.S.C.A. § 207(h), directs that the final decree shall discharge the debtor from its debts and liabilities. Subdivision (c)(8), 11 U.S.C.A. § 207(c)(8), provides that, if a plan is not proposed or accepted or if proposed and accepted but not confirmed, the court may direct the estate to be liquidated. Subdivision (k)(4), 11 U.S.C.A. § 207(k)(4), upon order for liquidation, authorizes to be proved as provided in section 57 (11 U.S.C.A. § 93) claims provable under section 63,⁴ but declares that none of the sections mentioned in subdivision (k) except subdivisions (g), (i), (j), and (m) of section 57⁵ and subdivisions a and e of section 70⁶ shall apply in proceedings under section 77B unless and until an order has been made directing liquidation of the estate. Mere reading of pertinent parts of the above-mentioned provisions makes it plain that 'creditors' and 'claims' as used in proceedings under section 77B are more comprehensive than in the act before the addition of that section. See American Surety Co. of New York v. Marotta, 287 U.S. 513, 517, 53 S.Ct. 260, 261, 77 L.Ed. 466. Undoubtedly 'creditors,' 'claims' and 'liabilities' to be dealt with in the reorganization proceeding include petitioner, the cause of action he asserts and the judgment he seeks to recover.

Section 77B(c)(10), (11 U.S.C.A. § 207(c)(10), enlarging power conferred by section 11,⁷ broadly declares the judge 'may enjoin or stay the commencement or continuation of suits against the debtor until after final decree.' The exclusive jurisdiction given the court over the debtor and his property, subdivision (a), 11 U.S.C.A. § 207(a), does not imply that the commencement or the carrying on of suits against the debtor must be enjoined or that all claims must be referred to a master for consideration and report. Subdivision (c)(11), 11 U.S.C.A. § 207(c)(11). See In re Prudence Bonds Corporation (C.C.A.) 75 F.(2d) 262, 263. The power to stay does not imply that it is to be, or appropriately may be, exerted without regard to the facts. The granting or withholding of injunction is left to the discretion of the court.

Was the denial of petitioner's application for leave to prosecute his action at law an abuse of discretion?

The record contains no opinion or statement of the District Judge to disclose the grounds on which he rested his denial. In reorganization proceedings neither the act nor any rule of law entitles debtors or trustees as a matter of right to enjoin the trial of actions such as that brought by petitioner. The court is to exercise the power conferred by subdivision (c)(10), 11 U.S.C.A. § 207(c)(10), according to the particular circumstances of the case and is to be guided by considerations that under the law make for the ascertainment of what is just to the claimants, the debtor and the estate. Osborn v. U.S. Bank, 9 Wheat. 738, 866, 6 L.Ed. 204; The Styria, Scopinich, Claimant v. Morgan, 186 U.S. 1, 9, 22 S.Ct. 731, 46 L.Ed. 1027; Langnes v. Green, 282 U.S. 531, 541, 51 S.Ct. 243, 247, 75 L.Ed. 520; Burns v. United States, 287 U.S. 216, 222, 223, 53 S.Ct. 154, 156, 77 L.Ed. 266. By section 33 of the Merchant Marine Act (46 U.S.C.A. § 688), under which the petitioner sued, Congress ordained that upon claims for personal injuries or death suffered in the course of their employment seamen or their personal representatives may maintain actions at law for damages with the right of trial by jury. The reorganization proceedings are not inherently inconsistent with jury trial for the liquidation of such claims. Unless satisfactorily shown that prosecution of petitioner's action would embarrass the administration of the debtor's estate, the District Court should have granted...