In re 2168 Broadway Corporation, 494.

• Decision Date: 15 July 1935
• Docket Number: No. 494.,494.
• Citation: 78 F.2d 678
• Parties: In re 2168 BROADWAY CORPORATION.
• Court: U.S. Court of Appeals — Second Circuit

78 F.2d 678 (1935)

In re 2168 BROADWAY CORPORATION.

No. 494.

Circuit Court of Appeals, Second Circuit.

July 15, 1935.

Harper & Matthews, of New York City (Mark M. Horblit, of Boston, Mass., and Harold Harper, of New York City, of counsel), for appellant.

Daniel A. Shirk and Milton A. Goldiner, both of New York City (Edwin R. Wolff and Daniel A. Shirk, both of New York City, of counsel), for appellees.

Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

SWAN, Circuit Judge.

It is provided by section 77B (a), Bankr. Act, 11 USCA § 207 (a), that three or more creditors, who have provable claims against a corporation aggregating $1,000 or more in excess of the value of securities, may file "a petition stating that such corporation is insolvent or unable to meet its debts as they mature and, if a prior proceeding in bankruptcy or equity receivership is not pending, that it has committed an act of bankruptcy within four months," and that such creditors propose that it shall effect a reorganization. Subdivision (i), § 77B of the act, 11 USCA § 207 (i), further provides: "If a receiver or trustee of all or any part of the property of a corporation has been appointed by a Federal, State, or Territorial court * * * a petition or answer may be filed under this section at any time thereafter by the corporation, or its creditors as provided in subdivision (a) of this section." The appellants are three creditors of 2168 Broadway Corporation, a New York corporation which holds the title to premises known as 2166-2168 Broadway. They filed a petition for the reorganization of their debtor, alleging that receivers had been appointed in an action commenced in the state court to foreclose a mortgage upon the debtor's property and that such receivers were in possession of its only property and administering the income therefrom for the benefit of the plaintiff in said action. Upon motion of other creditors of the debtor corporation the District Court dismissed the petition on the ground that a mortgage foreclosure suit, in which receivers have been appointed, is not an "equity receivership" within the meaning of section 77B. The correctness of this construction is the sole question presented.

Because the statute is of so recent enactment there has been as yet but little expression of judicial opinion on this important question. In three cases arising in the Eastern District of Illinois, Judge Lindley has held a mortgage foreclosure suit in which receivers were appointed to be an "equity receivership" for the purposes of section 77B. In re Flamingo Hotel Co. (August 9, 1934, not reported¹); In re Surf Building Corp. (Oct. 17, 1934) 11 F. Supp. 295; In re Granada Hotel Corp. (D. C.) 9 F. Supp. 909. The case last cited has been affirmed by the circuit court of appeals for the seventh circuit in a short per curiam opinion, handed down June 5, 1935, 78 F.(2d) 409. Opposed to these decisions is the opinion of Judge Knox in the case at bar, a decision by Judge Hulbert in In re Draco Realty Corp. (D. C. S. D. N. Y., June 3, 1935), and a dictum by Judge Faris in In re Laclede Gas Light Co. (D. C. S. D. Mo., June 26, 1934, not reported¹). See, also, 48 Harv. L. Rev. 39, 54, note 57.

The appellants argue that the words "equity receivership" are too clear to admit of construction and that custody of the property of a corporation by a receiver appointed in the exercise of chancery powers in any suit in equity must necessarily satisfy the requirements of the statute. It cannot be gainsaid that an action to foreclose a mortgage is a suit in equity, or that the receiver appointed in such a suit to conserve the mortgaged property and collect the rents pending foreclosure may properly be called a receiver in equity. See Carmody's N. Y. Practice (2d Ed.) vol. 8, § 1023; Gordon v. Washington, 295 U. S. 30, 55 S. Ct. 584, 79 L. Ed. ___ (April 1, 1935). Nevertheless, it by no means follows that that is the type of suit Congress had in mind when it used the words in question. It would be strange indeed to call such a suit an "equity receivership"; so far as we are aware, a foreclosure action is never so referred to. The kind of suit to which those words are usually applied in common parlance is one commenced by a simple contract creditor praying for the conservation of the assets of a corporation insolvent in the common-law sense, in which the corporation confesses the allegations of the bill and consents to the appointment of a receiver. The end sought by such a suit is the liquidation of the assets and their equitable distribution among creditors (Gordon v. Washington, supra), although in rare...