In re Copeland

• Decision Date: 03 February 1975
• Docket Number: No. BK 70-94.,BK 70-94.
• Citation: 391 F. Supp. 134
• Parties: In the Matter of Lammot duPont COPELAND, Jr., Debtor.
• Court: U.S. District Court — District of Delaware

391 F. Supp. 134

In the Matter of Lammot duPont COPELAND, Jr., Debtor.

No. BK 70-94.

United States District Court, D. Delaware.

February 3, 1975.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

E. Norman Veasey, Martin I. Lubaroff, and Richard G. Elliott, Jr., Richards, Layton & Finger, Wilmington, Del., for the debtor.

Howard L. Williams, and Eduard F. von Wettberg, III, Morris, James, Hitchens & Williams, Wilmington, Del., for the Creditors' Committee.

Joseph Donald Craven, F. Alton Tybout, Tybout, Redfearn & Schnee, Wilmington, Del., for Pension Benefit.

OPINION

MURRAY M. SCHWARTZ, District Judge.

This opinion treats the scope of summary jurisdiction in a Chapter XI proceeding under the Bankruptcy Act and the meaning of the term "bailee" as used in section 9-305 of the Uniform Commercial Code.

On July 3, 1967, Lammot duPont Copeland, Jr. ("Copeland") personally guaranteed a $2,700,000 loan made by Pension Benefit Fund, Inc. ("Pension Benefit") to Graphic Production Company and The Citizen-News Company ("corporations"). Nine days later, Copeland entered into an agreement with Pension Benefit whereby 18,187 shares of Christiana Securities Company ("Christiana") stock were posted as collateral security for his guarantee. On the same day, an escrow agreement was executed between Copeland, Pension Benefit and the Wilmington Trust Company ("WTC"). WTC was therein designated escrow agent to hold the Christiana stock. In the Spring of 1970 the corporations defaulted in making payment on the loan. On July 28, 1970, Pension Benefit made written demand upon the corporations, with copy allegedly sent to Copeland, for payment and advised legal action would be taken if payment were not forthcoming. On September 11, 1970, Pension Benefit sent a letter to Copeland and another to WTC demanding surrender of the escrowed Christiana stock.

On October 20, 1970, Copeland filed a Petition for an Arrangement under Chapter XI of the Bankruptcy Act, 11 U.S.C. § 701 et seq., and was thereafter appointed Debtor-in-Possession ("debtor"). Bankruptcy Act § 342, 11 U.S.C. § 742.

In December 1970 the escrow agent, upon further demand, delivered the Christiana stock to Pension Benefit.

On October 19, 1973, the debtor and the creditors' committee jointly and severally filed with the Referee a Turnover Application seeking an order directing Pension Benefit to surrender to the debtor all the Christiana stock and all dividends received by Pension Benefit with respect to the Christiana stock on the ground that on October 20, 1970 Pension Benefit had neither an attached nor perfected security interest in the Christiana stock. The Referee, on October 23, 1973, issued an order directed to Pension Benefit to show cause why the relief requested should not be granted. In response thereto, Pension Benefit filed with the Bankruptcy Court a Motion to Dismiss the Turnover Application on the ground that the Referee lacked jurisdiction over the subject matter, and on other grounds. Pension Benefit's Motion to Dismiss was joined with the debtor and creditors' committee's Turnover Application. Together they constitute the subject of this opinion.

A preliminary question has arisen as to the status of the record because a portion of it is before another judge of this Court in a related proceeding. A court may not simply travel outside a record in order to notice the record in other proceedings; rather, the record in the other proceedings must be introduced into evidence. Funk v. Commissioner, 163 F.2d 796, 800-802 (3d Cir. 1947). See also, IX Wigmore on Evidence, § 2579 (3d ed. 1940) hereinafter cited as Wigmore; 29 Am.Jur.2d Evidence § 58 (1967). However, if the record is from a prior stage in the same controversy or is part of the record in the same proceedings, a court, in its discretion may take judicial notice of the record. Young v. First National Bank, 85 F.Supp. 68 (N.D.Ill.1949); Frank v. Wilson and Company, 27 Del.Ch. 292, 32 A.2d 277 (Del.Sup.Ct.1943); cf. Wilmington Parking Authority v. Burton, 39 Del.Ch. 10, 157 A.2d 894 (Del.Sup. Ct.1960), rev'd on other grounds, 365 U.S. 715, 81 S.Ct. 856, 6 L.Ed.2d 45 (1961). See also, IX Wigmore, supra, § 2579, page 570; 29 Am.Jur.2d Evidence § 59 (1967). In the instant case the entire record is in this Court but before different judges. This Court exercises its discretion and takes judicial notice of the entire record in the District Court.

An issue raised by the Pension Benefit Motion to Dismiss the Application for Turnover Order is whether the scope of summary jurisdiction in a Chapter XI proceeding is broader than that which obtains in ordinary bankruptcy. The Debtor-in-Possession, relying upon section 311 of the Bankruptcy Act, 11 U.S.C. § 711,¹ asserts a bankruptcy court has summary jurisdiction over all property to which the Debtor-in-Possession has title, irrespective of who has possession. The creditor, Pension Benefit, contends ownership is unimportant and summary jurisdiction over the controversy is lacking because a third party had possession of the property and Pension Benefit had a substantial adverse claim to the Christiana stock.²

The positions of both litigants enjoy the support of respectable treatise authority.³ 8 Collier on Bankruptcy ¶ 3.02 (14th ed. 1975) hereinafter cited as Collier views section 311 of the Bankruptcy Act, 11 U.S.C. § 711, as increasing summary jurisdiction in Chapter XI proceedings so as to base it upon all the bankrupt's property, regardless of who holds possession. On the other hand, 9 H. Remington, Bankruptcy § 3574 (6th ed. 1955) espousing a different view would apply the same criteria for determining summary jurisdiction in Chapter XI as in straight bankruptcy:

"It is well settled that jurisdiction of a bankruptcy court in ordinary bankruptcy proceedings does not extend to property which, although asserted by some of those in interest to belong to the bankrupt and his estate, is, at time of institution of the proceedings, in possession of one claiming it adversely. This principle seems now to apply with full force to arrangement proceedings under Chapter XI . . . ."

The conflict has been expressly recognized though not necessarily resolved in the Ninth Circuit:

"In the instant case, appellant Receiver argues that in bankruptcy proceedings under Chapter XI the test of summary jurisdiction is debtor's ownership, not actual or constructive possession as in ordinary bankruptcy. In response to a similar claim, we said recently in Wikle v. Country Life Insurance Co., 423 F.2d 151, 153 (9th Cir. 1970):

`The two major bankruptcy treatises are in conflict on this point. Appellant relies on statements in 8 Collier on Bankruptcy, ¶ 3.02, pages 176-182, while appellees counter with a contrary view in 9 Remington on Bankruptcy, § 3573, pages 214-18 6th Ed. 1955. Although the matter is not free from doubt, case authority favors appellees' position. Sada Yoshinuma v. Oberdorfer Insurance Agency, 5 Cir., 136 F.2d 460, 461; Lockhart v. Garden City Bank and Trust Co., 2 Cir., 116 F.2d 658; In re California Paving Co., N.D.Cal., 95 F.Supp. 909.'

In Loyd v. Stewart and Nuss, Inc., 327 F.2d 642, 645 (9th Cir. 1964), and Pasadena Investment Company v. Weaver, 376 F.2d 175, 178 (9th Cir. 1967), however, this Court noted that `Section 311 11 U.S.C. § 711 confers exclusive summary jurisdiction to determine controversies with respect to property owned by the debtor, or in the actual or constructive possession of the debtor or the Bankruptcy Court.'

"Despite this seeming disagreement, we are not required to reach this precise question in resolving this case." In re Barasch, 439 F.2d 1393, 1394-95 (9th Cir. 1971).

The same Circuit in a later opinion recognized the "disarray" of its decisions, but was seemingly tending toward enlarged Chapter XI summary jurisdiction:

"2 As additional evidence that the Chapter XI jurisdiction was not intended to be restricted to a theory of possession, Section 314, 11 U.S.C. § 714 expressly gives the Bankruptcy Court authority to protect assets by injunction and to stay foreclosure proceedings—not just assets in the possession of the bankrupt.

"The cases in this circuit on the point appear to be in some disarray. Our most recent treatment of a Chapter XI proceeding discusses the problem but does not resolve it. Mithers v. Barasch, 439 F.2d 1393 (9th Cir. 1971)." In re Stockman Development Company, 447 F.2d 387, 390-91 (9th Cir. 1971).

The Second Circuit has approved the Collier approach of enlarged summary jurisdiction in Chapter XI.⁴ Slenderella Systems of Berkeley v. Pacific Tel. & Tel. Co., 286 F.2d 488, 489-90 (2d Cir. 1961).

The Third Circuit, in In re Penn Central Transportation Company, 453 F.2d 520, 522 (3d Cir. 1972), interpreted language identical to section 311 of the Bankruptcy Act, 11 U.S.C. § 711, to wit, section 77 of the Bankruptcy Act, 11 U. S.C. § 205, in a manner consistent with the Collier interpretation. In In re Rubin, 378 F.2d 104 (3d Cir. 1967), the same Circuit embraced the concept of enlarged summary jurisdiction based upon ownership.⁵

"The question of summary jurisdiction will depend on whether the debtor had constructive possession of the routes at the time the petition was filed or anytime subsequent thereto. In the case of intangibles such as these routes, constructive possession usually follows ownership. In re Marsters, 101 F.2d 365 (C.A. 7, 1938), cert. denied sub nom. Herman v. Henley, 306 U.S. 663, 59 S.Ct. 788, 83 L. Ed. 1059 (1939) (and cases cited). Of course ownership can only be determined from an in-depth examination of the relationship, contractual and otherwise, between the `driver-salesmen' and the debtor. If ownership is determined to reside in the debtor, the court will have summary jurisdiction as well as jurisdiction over the routes themselves since it has jurisdiction of the `debtor's * * * property, wherever located.' Bankruptcy Act, § 311, 11 U.S.C. § 711." Id. 378 F.2d at 109.

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