Hollander v. Henry, 139

• Decision Date: 29 January 1951
• Docket Number: Docket 21852.,No. 139,139
• Citation: 186 F.2d 582
• Parties: HOLLANDER et al. v. HENRY, Trustee In Bankruptcy.
• Court: U.S. Court of Appeals — Second Circuit

186 F.2d 582 (1951)

HOLLANDER et al. v. HENRY, Trustee In Bankruptcy.

No. 139, Docket 21852.

United States Court of Appeals Second Circuit.

Argued January 5, 1951.

Decided January 29, 1951.

Boudin, Cohn & Glickstein, New York City, Daniel W. Meyer, New York City, (Jean Taylor, New York City, of counsel), for appellants.

Allen Murray Myers, New York City, for bankrupt, Belt-Modes, Inc.

Before L. HAND, Chief Judge, and SWAN and AUGUSTUS N. HAND, Circuit Judges.

L. HAND, Chief Judge.

This is an appeal by fourteen texile workers from an order in bankruptcy, disallowing their claims for wages earned as employees of the bankrupt, Belt-Modes, Inc.; the only question presented is whether they were in fact the bankrupt's employees. The referee, who heard the matter in the first instance, held that they were; but the judge held that they were only employees of another corporation, Danin, Inc. The bankrupt was a corporation, all of whose shares were owned by one, Rubin; it was engaged in the manufacture of belts and pocketbooks; it had no board of directors, and no officers except Rubin, its president, who was concededly in absolute control of it. Those of its employees who worked on belts belonged to a different union from those who worked on pocketbooks; and some time in 1946 Gallack, the "business agent," of the pocketbook workers, told Rubin that "jurisdictional" questions had arisen between the two unions, which had to be settled. Rubin's attorney suggested that Rubin should form a new corporation with a separate factory, where the pocketbook workers should go, and where that part of the business should be carried on; and this was in any event desirable for the added reason that the business had somewhat outgrown the premises, Number One East 33rd Street, Manhattan, where it was being carried on. Gallack agreed and Rubin formed a new corporation, "Danin, Inc.," of which he was the only shareholder, and which, like the bankrupt, had no board of directors, or other officer than him as president. Gallack then executed a collective bargaining contract between the pocketbook union and Rubin, who executed it in the name of Danin, Inc.

The pocketbook business was thereupon transferred to 396 Broadway, Manhattan; Rubin personally lent money to the new corporation to buy new machinery, and added what other machinery was necessary by moving down some of the bankrupt's. The business was conducted in this way for a little less than a year, although the division in manufacture was not absolute, for at times belts were made at Broadway and pocketbooks were made uptown, where, indeed, all pocketbooks were "finished." The bankrupt advanced all the money for the weekly payrolls as they fell due; and, as pocketbooks were completed, they were sent up in batches to 33rd Street, where the bookkeeper estimated what the labor cost upon them had been, added fifteen per cent for good measure, and on its books credited Danin, Inc., with the amounts so found against the debits for the money advanced. Danin, Inc., itself kept a set of books, showing all its transactions with the bankrupt as though it had sold the bankrupt the pocketbooks; it filed its own tax returns, took out Social Security for its employees, Payroll Theft Insurance, Liability Insurance and Workmen's Compensation Insurance. It never had any other assets than the machinery which had been moved from 33rd Street, or which had been bought with Rubin's money, together with the periodic advances to meet its payrolls. At all times the bankrupt's manager employed all workmen, interviewing them at 33rd Street; and, if she engaged them, sending them to Broadway for the foreman to assign them to their specific duties. Early in 1948 Rubin concluded that this arrangement was no longer desirable, and closed up the Broadway factory. He sold some of the machinery, moved back the rest, and resumed making both belts and pocketbooks at 33rd Street. The bookkeeping continued as before, but Danin, Inc., had no longer property of any kind. All the wage claims here in suit arose after this change had been made.

The only question is whether the bankrupt was liable in contract to pay the claimants' wages, and such a liability is not inconsistent with a similar obligation to them of Danin, Inc.: both may have been liable. Since the issue arises in bankruptcy there is some doubt about what law we should look to for its answer: the law of New York where all the transactions occurred, or a "federal common-law," to be ascertained upon the model of Swift v. Tyson, 16 Pet. 1, 10 L.Ed. 865. There are expressions in recent decisions of the Supreme Court,¹ which, at least when taken out of the context, hold that a bankruptcy court in deciding whether claims against the estate shall be allowed, will not limit itself to their validity judged by the law where they arose. It is not clear whether this goes further than to hold that the bankruptcy court need not give the same effect in distribution to a claim, valid under state law, which that law would give in insolvency — as the concurrent opinion in Vanston Bondholders Protective Committee v. Green, supra, declared — or whether it means that the bankruptcy court may, and at times must, hold that claims provable against the estate have arisen from transactions out of which the state law would not have raised any claims whatever. Apparently, the Third Circuit has read the decisions in the second sense,² and we should have to choose here, provided that the law of New York and the "federal common-law" differed, because the question is whether the transactions created any claims whatever against the bankrupt. We are satisfied, however, that there is no difference between the two laws in this respect. Cardozo, J., in Berkey v. Third Ave. R. Co., 244 N.Y. 84, 95, 155 N.E. 58, 61, 50 A.L.R. 599, declared that as between parent and subsidiary "Dominion may be so complete, interference so obstrusive, that by the general rules of agency the parent will be a principal and the subsidiary an agent"; and even when that is not so, considerations of "honesty and justice" may compel a court to decide the same way. Rapid Transit Subway Construction Co. v. City of N. Y., 259 N.Y. 472, 488, 489, 182 N.E. 145, 150, recognized this is an authoritative exposition of the New York law; and Lehman, J., in his opinion cited two decisions of the Supreme Court,³ which he thought, as we do, to hold the same doctrine; saying that in these two decisions...