In re Dolly Madison Industries, Inc., 70-354.
| Decision Date | 04 May 1971 |
| Docket Number | No. 70-354.,70-354. |
| Citation | 326 F. Supp. 441 |
| Parties | In the Matter of DOLLY MADISON INDUSTRIES, INC., et al. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Frank H. Gelman, Mesirov Gelman, Jaffe & Levin, Philadelphia, Pa., for petitioners.
John S. Estey, Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., for debtor.
Presently before the court is the petition of Messrs. Fairman, Deutscher and Lusky for review of an order by the Referee in Bankruptcy. The matter arises by way of a reclamation petition wherein the petitioners alleged the following facts: That two of the petitioners were the owners of all the issued and outstanding capital stock of a Pennsylvania corporation known as Original Metal Manufacturing Co. ("OMMC"); that an agreement was entered into on February 20, 1969 between OMMC and the debtor providing for the transfer by OMMC of substantially all of its assets to the debtor in exchange for twelve thousand shares of a newly created series of convertible preferred stock of the debtor, and the assumption by the debtor of OMMC's liabilities; that OMMC was dissolved and the shares of preferred stock were distributed to two of the petitioners as a liquidating dividend; that as required by the agreement, petitioners leased the OMMC plant and parking facilities to the debtor, two of the petitioners entered into employment contracts with the debtor, and two of the petitioners became participants in the debtor's profit sharing trust plan.
In their reclamation petition, petitioners assert that the decision to sell substantially all of the assets of OMMC to Dolly Madison Industries ("DMI") was made in reliance on false and misleading financial statements of DMI and request the return to them of the former OMMC assets. The relief requested would of course include the cancellation of the leases and employment contracts and, in addition, recognizes that petitioners would be required to return the preferred shares to the debtor for cancellation and relinquish their rights in the profit sharing trust.
The matter was referred to the Referee for all necessary proceedings. The Referee, on his own motion, then raised the question of his own jurisdiction to adjudicate the matter, and, despite the fact that counsel for both the petitioners and the debtor argued that he did have summary jurisdiction, held that the bankruptcy court was without summary jurisdiction.
The question presented for consideration at this time is whether the bankruptcy court has summary jurisdiction over a reclamation petition which seeks, in addition to the return of physical assets, the transfer of the debtor's rights under lease agreements and employment contracts and the transfer or cancellation of stock rights held by the petitioner, all of which were integral parts of a single transaction.
It is hornbook law that the bankruptcy court has the power in the first instance to determine whether it has jurisdiction to proceed. Since it is a court created by statute, the jurisdiction of the bankruptcy court is limited to those areas conferred by statute or implied therefrom. In a Chapter X proceeding, with which we are here concerned, the bankruptcy court is vested by virtue of § 111 of the Bankruptcy Act with "exclusive jurisdiction of the debtor and its property, wherever located". Thus, the resolution of the problem must start with the obvious acknowledgment that where the controversy is one concerning property in the actual or constructive possession of the bankruptcy court, all rights and claims pertaining to that property may be adjudicated summarily by that court. 2 Collier, Bankruptcy § 23.04(2) (14th ed. 1969).
The Referee, in his opinion, expends considerable effort to demonstrate that jurisdiction of the subject matter cannot be secured by consent other than as permitted by Section 23(b) of the Bankruptcy Act and that Section 23(b) applies only to suits brought by the Trustee. The Referee is correct in stating the general rule that subject matter jurisdiction...
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