Hamilton Gas Co. v. Watters

• Decision Date: 09 January 1935
• Docket Number: No. 3712.,3712.
• Citation: 75 F.2d 176
• Parties: HAMILTON GAS CO. v. WATTERS et al.
• Court: U.S. Court of Appeals — Fourth Circuit

75 F.2d 176 (1935)

HAMILTON GAS CO. v. WATTERS et al.

No. 3712.

Circuit Court of Appeals, Fourth Circuit.

January 9, 1935.

Frank Lively, of Charleston, W. Va., and Nathan A. Smyth, of New York City, for appellant.

Stanley C. Morris, of Charleston, W. Va., and Thomas R. White, of Philadelphia, Pa. (Philip P. Steptoe, of Charleston, W. Va., White, Schnader, Maris & Clapp, of Philadelphia, Pa., and Steptoe & Johnson, of Charleston, W. Va., on the brief), for appellees.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

SOPER, Circuit Judge.

A conflict has arisen as to which of two federal courts — the District Court of the Southern District of West Virginia or the District Court of the Southern District of New York — has obtained jurisdiction, as a court of bankruptcy, of the proceedings for the reorganization of Hamilton Gas Company, a Delaware corporation, under the provisions of the Act of Congress of June 7, 1934, whereby sections 77A and 77B were added to the National Bankruptcy Act (11 USCA §§ 206, 207). The Act of June 7, 1934, was approved by the President at 12 o'clock on that day. The fact that the act had been signed was promptly telephoned from Washington, D. C., to attorneys in Charleston, W. Va. Thereupon they filed a petition in the District Court for the Southern District of West Virginia on behalf of the debenture holders' protective committee of the corporation and two other creditors, alleging that the corporation had its principal place of business and its principal assets in that district; that it was engaged in the business of producing and selling natural gas in West Virginia and Kentucky to other corporations, who sold and distributed the product to customers; that it had outstanding 1,684 shares of 7 per cent. preferred stock of the par value of $100 and 925,079 shares of common stock of the par value of $10; that its liabilities consisted of $2,346,000 of 6½ first mortgage bonds, $746,000 of five-year sinking fund debentures, $350,000 of unsecured notes and other obligations, and $300,000 as an indorser upon the notes of a subsidiary; that, having been unable for some time to meet its maturing obligations, receivers were appointed to take charge of its property by the District Court of the Southern District of West Virginia on January 20, 1932, while it was insolvent, under whose supervision the business of the corporation had since been operated; that during the receivership, and prior to June 7, 1934, a committee representing the bondholders had been formed, and had received on deposit 60 per cent. of the outstanding bonds, and had formulated a plan for the reorganization of the corporation, and that, shortly after the appointment of the receivers, the debenture holders' protective committee was formed, and had received on deposit 77.9 per cent. of the outstanding debentures.

The petition alleged that it was necessary that the capital structure of the corporation be reorganized so as to reduce the fixed character of its obligations and the extent of the maturities thereof, and that the plan of reorganization formed by the bondholders' committee was feasible, and that the petitioners desired to effect a reorganization of the corporation substantially in accordance therewith.

On this petition, an order was passed directing that a copy of the petition and of the order be served upon the debtor, and that within ten days after service the debtor file its answer to the petition. An answer was filed on June 18, 1934, in which it was alleged that the court was without jurisdiction to entertain the proceeding because (1) the petition had been filed on June 7, 1934, prior to the taking effect of section 77B; and (2) that on June 8, 1934, at 9:01 a. m. daylight saving time, the corporation had filed its petition for reorganization under the same section of the act in the United States District Court for the Southern District of New York, where it had its principal place of business; and that on June 9, 1934, that court had entered its decree, approving the petition as properly filed in good faith and taking exclusive jurisdiction of the debtor and its property wherever located. The answer also denied that during the six months next preceding the date of the filing of the petition in West Virginia the corporation had its principal place of business in the Southern District of that state, or that the debtor was insolvent or that receivers had been appointed for it during insolvency. There was no denial of the allegation of the petition that the debtor had had its principal assets within the territorial jurisdiction of the court.

On June 21, 1934, the matter was considered by the court on petition and answer, and it was decreed that the petition of the creditors be approved as complying with section 77B and as having been filed in good faith; and it was further decreed that the court take exclusive jurisdiction of the proceedings as of the date of their inception, for the purposes of the section, and also of the debtor and all of its property, wheresoever situated. A motion of the debtor, through its counsel, that the petition be dismissed upon the grounds set out in the answer, was denied. A petition for the approval of the plan of reorganization was inspected by the court and ordered to be filed.

An appeal was taken from this decree. The appellant contends that the Act of June 7, 1934, did not take effect until the next day, because it provides in section 77B, subsec. (p), 11 USCA § 207 (p), that the section shall take effect and be in force from and after the date of the approval of the amendatory act. The argument is based for the most part on certain decisions which, interpreting a statute or a contract, hold that, when time is to be reckoned from a particular day or event, the general rule is to exclude the designated day and to include the last day of the specified period. On the other hand, there is the well-established rule that an act of Congress, in the absence of an express prohibition to the contrary, takes effect from the day of its approval by the President. Compare Sheets v. Selden's Lessee, 2 Wall. 177, 191, 17 L. Ed. 822; Burnet v. Willingham L. & T. Co., 282 U. S. 437, 51 S. Ct. 185, 75 L. Ed. 448; Dillon v. Gloss, 256 U. S. 368, 41 S. Ct. 510, 65.L. Ed. 994; Corneli v. Moore, 257 U. S. 491, 42 S. Ct. 176, 66 L. Ed. 332; Zimmerman v. United States (C. C. A.) 277 F. 965; Leidigh Carriage Co. v. Stengel (C. C. A.) 95 F. 637, 641; Turner v. Odum, 3 Cold. (43 Tenn.) 455. Hence, notwithstanding certain dicta that the act in question did not take effect until June 8, 1934 (In re National Department Stores (D. C.) 8 F. Supp. 19), we shall assume for the purposes of this case that it took effect when signed by the President, and that the petition filed by the creditors, in law as well as in fact, was filed prior to the debtor's petition in the District Court of the Southern District of New York.

There are, however, certain provisions in section 77B, from which it seems to us reasonable to infer that, under such conditions as prevail in this case, the court, in which a voluntary petition is filed by a debtor, takes jurisdiction of the case, although a creditors' petition may have been previously filed in another district; and hence the case should not be governed by an application of the ordinary rule that, as between two courts of concurrent and co-ordinate jurisdiction, the court which first obtains jurisdiction and constructive possession of property by the filing of a bill is entitled to retain it without interference. Harkin v. Brundage, 276 U. S. 36, 43, 48 S. Ct. 268, 72 L. Ed. 457. The act provides alternative methods by which plans of reorganization may be submitted to the courts. The initiative may be taken by the debtor corporation, or by three or more creditors who have provable claims amounting, in the aggregate, exclusive of the value of securities held by them, to $1000 or over; and the proceedings in either case may be instituted either in the court in whose territorial jurisdiction the corporation, during the preceding six months, has had its principal place of business or its principal assets, or in any territorial jurisdiction in the state in which it was incorporated. Conflicts are obviously likely to occur, since either of two interested groups may begin proceedings in any one of three (or more) different jurisdictions. The inquiry is whether section 77B furnishes the guide to solve the difficulties as they arise, so that recourse to the general rule of priority need not be had.

We note first of all that subsection (a) of section 77B (11 USCA § 207 (a), referring to the petition or answer which a corporation is authorized to file, provides that "the court shall upon petition transfer such proceedings to the territorial jurisdiction where the interests of all the parties will be best subserved." This calls for an exercise of judicial discretion, but does not settle the question as to which of two courts, lawfully entertaining proceedings for reorganization, has the prior right to proceed. The provision, however, does recognize the fact that the ordinary rule that the court which first obtains jurisdiction of a case retains it to the end is not necessarily always applied. It was perhaps unnecessary for Congress to include this provision, since under subsection (k) of section 77B (11 USCA § 207 (k) consistent provisions of the National Bankruptcy Act in general are made applicable to reorganization proceedings; and section 32 of that act (11 USCA § 55) empowers courts of bankruptcy, when petitions are filed in different jurisdictions against the same person, to relinquish jurisdiction to that court which can proceed with the proceeding for the greatest convenience of the parties in interest. General Order in Bankruptcy No. 6 (11 USCA § 53), adopted by the Supreme Court of the United States, also provides that, when two or more petitions shall be filed...