In re 1030 North Dearborn Bldg. Corporation

• Decision Date: 04 August 1934
• Docket Number: No. 2439-D.,2439-D.
• Citation: 7 F. Supp. 896
• Parties: In re 1030 NORTH DEARBORN BLDG. CORPORATION.
• Court: U.S. District Court — Eastern District of Illinois

7 F. Supp. 896

In re 1030 NORTH DEARBORN BLDG. CORPORATION.

No. 2439-D.

District Court, E. D. Illinois.

August 4, 1934.

Friedman, Schimberg & Alster and Theodore D. Kahn, all of Chicago, Ill., for creditors.

Pritzker & Pritzker and Chas. B. Haffenberg, all of Chicago, Ill., for interveners.

LINDLEY, District Judge.

This is a petition filed by three creditors under section 77B of the Bankruptcy Act as added by Act June 7, 1934 (11 USCA § 207), against "1030 North Dearborn Building Corporation." The latter had been served with process and has defaulted. The M. Stein Hotel Company, a corporation, now seeks leave to intervene and to file an answer seeking to defeat the original proceeding and to secure dismissal thereof. It avers that by deed of conveyance duly recorded, prior to the institution of these proceedings, it became the owner of the property originally belonging to defendant corporation and mentioned in the original petition.

In addition a bondholders' committee seeks to intervene and to file an answer of similar import, averring that it is a committee with which bondholders have deposited bonds secured by trust deed upon the premises mentioned. A third motion for intervention and for leave to file a similar answer is that of the Chicago Title & Trust Company, a corporation, as trustee under the trust deed securing the bond issue.

Section 77B, subd. (a), of the Bankruptcy Act as added (11 USCA § 207 (a), provides for the filing of a petition such as filed here by three or more creditors. The same subdivision provides that three or more creditors holding securities of $1,000 or more in value in excess of securities held or stockholders aggregating 5 per cent. of the total shares of capital stock shall have the right to appear and controvert the facts alleged to the petition, whereupon the court shall hear and determine the issues. There is no other provision for any other person appearing in defense of the petition.

Subdivision (c) of section 77B (11 USCA § 207 (c) has to do with proceedings after the preliminary hearings upon the validity of the petition, including the appointment of the trustee and all other proceedings in court thereafter. In this subsection it is provided that any stockholder shall have the right, upon filing a petition to intervene, to be heard upon questions arising in the proceeding, as the court shall determine. It thus appears that so far as the preliminary hearing is concerned, and so far as the relief which may then be granted is concerned, the M. Stein Hotel Company is a complete stranger. It is not a creditor but claims to be the owner of the property. Consequently under the provision of the Bankruptcy Act as amended, it is not a proper party to be allowed to intervene to defend and controvert the propriety of the filing of the original petition, or the court's jurisdiction thereunder.

The trustee under the trust deed does not constitute three creditors who are qualified under subdivision (a) to appear and controvert the allegations of the petition. It is a decree creditor, who is authorized by virtue of the provisions of subdivision (c) to appear and ask the court to protect its interests.

The bondholders' committee is a voluntary committee with which there have been deposited under a deposit agreement a large number of bonds secured by the trust deed. Legal title to the bonds has passed to the committee as trustee for the depositing bondholders together with such special rights as are created by such contract. But this committee does not show that it is qualified within the meaning of the provision of subdivision (a) to appear and controvert the allegations of the original petition. It does not show that it is the owner of securities worth more than $1,000 in excess of the values of securities held by them.

I have discussed the provision of the Bankruptcy Act with regard to intervention. In the absence of other provisions, I assume that the practice should be largely as it is in equity. Such is the general rule. Equity Rule 37 (28 USCA § 723) is as follows: "Anyone claiming an interest in the litigation may at any time be permitted to assert his right by intervention, but the intervention shall be in subordination to, and in recognition of, the propriety of the main proceeding. * * * The interest must be a legal interest which will or may be affected by the decree."

The latter qualification, that the intervention shall be in subordination to and in recognition of the proceedings, is in accord with the practice as it had been previously established in federal courts. Thus in Central Trust Co. v. McGeorge, 151 U. S. 129, 14 S. Ct. 286, 288, 38 L. Ed. 98. The court said: "It is scarcely necessary to say that, as the defendant company had submitted itself to the jurisdiction of the court, such voluntary action could not be overruled at the...