In re Cuyahoga Finance Co., 9378.
| Citation | 136 F.2d 18 |
| Decision Date | 07 June 1943 |
| Docket Number | No. 9378.,9378. |
| Parties | In re CUYAHOGA FINANCE CO. LAKE SHORE FINANCE CORPORATION v. WEIR. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Morton M. Stotter, of Cleveland, Ohio, for appellant.
H. Walter Stewart, of Cleveland, Ohio (H. Walter Stewart and Thompson, Hine & Flory, all of Cleveland, Ohio, on the brief), for appellee.
Richard B. Ainsworth, of Philadelphia, Pa. (John F. Davis, of Philadelphia, Pa., Charles J. Odenweller, Jr., of Cleveland, Ohio, Louis Loss, of Philadelphia, Pa., and Richard B. Ainsworth, of Cleveland, Ohio, on the brief), for Securities and Exchange Commission.
Before ALLEN, HAMILTON, and MARTIN, Circuit Judges.
This case presents the following questions: (a) In a reorganization proceeding under Chapter 10 of the Bankruptcy Act, 11 U.S.C.A. §§ 511 to 517, inclusive, does the Bankruptcy Court have jurisdiction to determine in a summary action, set-offs against the debtor's obligation to a pledgee creditor, such creditor having possession of the pledged assets where the creditor declines to file a claim or otherwise consent to the jurisdiction of the court? (b) Assuming the court had jurisdiction, were the findings of the Special Master approved by the court, supported by substantial evidence?
At the commencement of these proceedings, the debtor, The Cuyahoga Finance Company owed appellant, The Utopia Finance Company, $9,000 with interest from April 29, 1941, on which there was pledged 286 shares of the capital stock of The Cuyahoga Acceptance Corporation, an Ohio corporation and a wholly owned subsidiary of the debtor.
The trustee filed an application in the proceedings for authority to redeem the pledge, and in connection therewith asked that the court determine the amount of two alleged set-offs, namely, the amount the creditor owed the debtor for services for the sale of the creditor's capital stock, and the amount the creditor owed the debtor for services of the debtor's employees and for use of its office facilities in carrying on the business of the creditor.
On notice, appellant answered and denied the jurisdiction of the court and, without waiving its plea, alleged that the debtor was indebted to appellant in the sum of $14,078.43 and claimed the debtor was also contingently indebted to it in the sum of $10,065.50 and that it held as security for these indebtednesses, 286 shares of stock of The Cuyahoga Acceptance Corporation. The matter was referred to a Master who reported that the court had jurisdiction and found that the debtor owed appellant, The Utopia Finance Company, the fixed sum of $9,000, plus interest of $450.50 and that Utopia owed the debtor $4,412, with interest of $889.06 and that the debtor was further obligated to the Utopia in an undetermined sum not in excess of $7,000 and also upon a contingent liability which would not exceed $3,000. The court overruled the exceptions of appellant to the Special Master's report and adopted his findings, conclusions and order.
The vital question on this appeal is whether the jurisdiction of the court ceases after restraining a pledgee creditor from disposing of the pledged assets in his possession without the consent of the court or whether such jurisdiction extends to determine set-offs of the debtor without the consent of the creditor. It is settled law that upon the filing of a petition under chapter 10 of the Bankruptcy Act, all property in which the debtor has, or may claim, an interest passes under the control of the Bankruptcy Court, and upon approval of the petition, title vests in the trustee or the debtor in possession as of the date of the filing of the petition. 11 U.S.C.A. § 557, 52 Stat. 888; Gross v. Irving Trust Company, 289 U.S. 342, 344, 53 S.Ct. 605, 77 L. Ed. 1243, 90 A.L.R. 1215; Isaacs v. Hobbs Tie and Timber Company, 282 U.S. 734, 737, 51 S.Ct. 270, 75 L.Ed. 645. The jurisdiction of the court is not limited to the administration of the property which admittedly belongs to the debtor, but also extends to the determination of the question of title. Ex Parte Baldwin, 291 U.S. 610, 54 S.Ct. 551, 78 L.Ed. 1020. To this end the Bankruptcy Court may enjoin creditors collaterally secured from selling or disposing of such collateral without the consent of the court and may make all orders necessary to prevent hindrance or delay in the preparation and consummation of the plan of reorganization. Continental Illinois Nat. Bank & Trust Co. v. Chicago, Rock Island & P. Railway, 294 U.S. 648, 676, 55 S.Ct. 595, 79 L.Ed. 1110.
In ordinary bankruptcy, if the claim of the creditor is substantial and he has property in his possession which he insists is his own or which he holds as security for a debt of the bankrupt, the court is without jurisdiction to adjudicate the rights of the parties without the consent of the creditor even in a plenary action unless other conditions prescribed by the statute are met. 11 U.S.C.A. § 46, 52 Stat. 854; May v. Henderson, 268 U.S. 111, 116, 45 S.Ct. 456, 69 L.Ed. 870; Taubel-Scott-Kitzmiller Co. v. Fox, 264 U.S. 426, 433, 44 S.Ct. 396, 68 L.Ed. 770; Louisville Trust Company v. Comingor, 184 U.S. 18, 26, 22 S.Ct. 293, 46 L.Ed. 413. This rule does not apply in reorganization proceedings. Such proceedings are controlled by the amended Act of 1938, 52 Stat. 883.
One of the purposes of the statute was the enlargement of the jurisdiction of the court. The restrictions of Section 23, 11 U.S.C.A. § 46 were abrogated unless the proceeding degenerated into ordinary bankruptcy. The statute expanded the former Act to give the court in reorganization proceedings such jurisdiction as a court of the United States would have if it had appointed a receiver in equity of the property of the debtor on the ground of insolvency or inability to meet debts as they matured. 11 U.S.C.A. § 515, 52 Stat. 884.
Under the equity powers in an insolvency proceeding, the appointment of a receiver confers upon the court jurisdiction to decide all questions incident to the preservation, collection and distribution of the assets regardless of citizenship or the amount in controversy. Riehle v. Margolies, 279 U.S. 218, 223, 49 S.Ct. 310, 73 L. Ed. 669. Controversies relating to assets of the debtor may be decided in the original suit (Rouse v. Letcher, 156 U.S. 47, 50, 15 S.Ct. 266, 39 L.Ed. 341) or by ancillary proceedings (White v. Ewing, 159 U.S. 36, 15 S.Ct. 1018, 40 L.Ed. 67) and the court may issue all writs necessary for the exercise of its equity powers and to protect from interference all property, actually or constructively in its possession. Continental Illinois Nat. Bank v. Rock Island Railway, 294 U.S. 648, 676, 55 S.Ct. 595, 79 L.Ed. 1110; Julian v. Central Trust Company, 193 U.S. 93, 112, 24 S.Ct. 399, 48 L.Ed. 629.
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...treatment of a similar provision contained in § 77. On the other hand, § 115 has been interpreted as jurisdictional. In re Cuyahoga Finance Co., 6 Cir., 1943, 136 F.2d 18; see Warder v. Brady, 4 Cir., 1940, 115 F.2d 89, 93, 94. Other courts have thought the suspension of § 23 in Chapter X c......
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