In re Benwood Brewing Co.

• Citation: 202 F. 326
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)
• Decision Date: 28 January 1913
• Parties: In re BENWOOD BREWING CO.

202 F. 326

In re BENWOOD BREWING CO.

United States District Court, N.D. West Virginia.

January 28, 1913

The bankrupt corporation issued bonds for $60,000, and secured the same by deed of trust upon all its real estate plant and fixtures. Nineteen thousand dollars of these bonds were sold for value. The remainder of them were hypothecated to secure sums borrowed at 50 cents on the dollar. The company became largely indebted to unsecured creditors, who were threatening suits. In this condition of affairs, Michael Agnic, in fact a stockholder, bondholder, creditor, and president of the company, presented to the circuit court of Marshall county W. Va., his bill as an unsecured creditor only against the corporation, its bondholders, and numerous creditors, setting forth the bond issue, the debts outstanding, the threatened suits on the part of creditors, that the business was and would be profitable if creditors were stayed and a receiver appointed to conduct the business. Upon this bill and notice to the parties of the application, on November 16, 1909, the circuit court of Marshall county appointed G. D. Ridenour a special receiver, and directed him 'to take charge of the real and personal property, business, and assets of the defendant, the Benwood Brewing Company, and conduct said business until the further order of this court, and collect the debts due said company, and apply and dispose of the assets of said company in accordance with the orders of said court, with the right to such receiver to employ such counsel, clerks, and other assistants as may be necessary to enable him to properly discharge his duties hereunder. ' Ridenour, under this appointment, did take charge of and conduct the business. In his management he incurred large indebtedness as receiver. No appearance to this bill was made until February 18, 1911, when a creditor tendered a demurrer thereto, and on February 16, 1912, certain bondholders also demurred. On the same day these demurrers were sustained notice given by plaintiff of his purpose to file an amended bill which was filed the next day. Meanwhile, in October 1911, this proceeding in bankruptcy was instituted, and Chas J. Stuck was appointed receiver. In November following the company was adjudged bankrupt, the cause was referred to a referee, and Stuck elected trustee. A bitter controversy at once arose between the three classes of creditors, the bondholders, the creditors of Ridenour, receiver, and the unsecured creditors. A petition was presented to this court objecting to the referee, and asking that the cause be referred to another. Upon consideration of this petition an order was entered, agreeable to all parties, that the referee should take the evidence, and refer the matters in dispute direct to this court for its adjudication. This he has done.

John P. Arbenz and Caldwell & Caldwell, all of Wheeling, W. Va., for bondholders.

J. B. Sommerville, of Wheeling, W. Va., for Ridenour, state receiver, and his creditors.

McCamic & Clarke, of Wheeling, W. Va., for creditors of state court receivers.

Erskine & Allison, of Wheeling, W. Va., for other creditors of state receiver.

J. H. Brennan, of Wheeling, W. Va., for bankrupt's receiver.

DAYTON, District Judge (after stating the facts as above).

The main controversy here is between the bondholders and the state receiver and creditors representing debts incurred by him as such receiver.

The bondholders insist that their prior vested lien upon the corpus of the property cannot be impaired or diminished by payment of the state receiver's compensation for services rendered by him, his counsel fees, and debts incurred by him. They base this contention upon substantially two grounds: First, because the circuit court of Marshall county had no jurisdiction to appoint Ridenour receiver because of lack of equity apparent on the face of the bill, that it has itself so held by sustaining the demurrer thereto; second, because a court of equity has no power, without the consent of all lien creditors, to authorize the receiver of an insolvent private corporation, whose business is not affected with any public interest, to incur indebtedness which will be a paramount lien upon its property, for the purpose of carrying on its business, unless it be necessary to do so to preserve the existence of the property or franchises.

In determining the first proposition it seems to me necessary to bear in mind that this state court was one of general jurisdiction; that the property and the parties in interest were within its judicial limits and control; that it had under proper conditions the right and power to appoint a receiver for the company for all legal purposes and not otherwise.

It seems to me, therefore, that the determination of whether the bill presented such equity as warranted the exercise of its admitted power to appoint was a judicial act such as could be, if not revoked by the court itself, only reversed by appeal to the proper appellate court, and, until so reversed cannot be questioned collaterally by this or any other court. This bankruptcy court cannot under any circumstances exercise such appellate powers over the judicial acts of state tribunals. Where the act of such state court is absolutely null and void by reason of want of jurisdiction over the subject-matter or parties, then such act can be attacked collaterally in this as in all other courts. The fact that this state court has sustained a demurrer to the original bill under which it appointed the receiver is strongly indicative of its doubt after maturer consideration of the propriety of appointing such receiver, but it is to be remembered that it has not reversed the appointment and discharged him, but, on the other hand, has, in effect, continued him and permitted the plaintiff in the proceeding to file an amended bill, a demurrer to which, the record discloses, it has now under advisement. The filing of such amended bill is expressly authorized by statute in this state, and, if the amendment is proper, it is held to relate back in effect to the time of the filing of the original bill. I am therefore convinced that these bondholders cannot maintain here their first contention. The second one presents far more difficulty. Its solution cannot be solved upon the same grounds as the first, in my judgment, for two reasons: First, because the state court has not passed upon or approved in any manner the legality of its receiver's expenditures, has not decreed payment of any of the debts contracted by him nor determined whether they were authorized legally to be incurred by him; second, the jurisdiction of this court in bankruptcy is essentially exclusive in administering the...