In re Dressler Producing Corporation

• Decision Date: 10 December 1919
• Docket Number: 61.
• Citation: 262 F. 257
• Parties: In re DRESSLER PRODUCING CORPORATION. Petition and Appeal of DALTON et al.
• Court: U.S. Court of Appeals — Second Circuit

262 F. 257

In re DRESSLER PRODUCING CORPORATION. Petition and Appeal of DALTON et al.

No. 61.

United States Court of Appeals, Second Circuit.

December 10, 1919

Whitman Ottinger & Ransom, of New York City (Nathan Ottinger, of New York City, of counsel), for appellants.

Barker Donahue, Anderson & Wylie, of New York City (Louis J. Wolff of New York City, of counsel), for bankrupt.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

MANTON Circuit Judge.

The appellants, Marie Dressler Dalton, a stockholder of one-half the capital stock of the bankrupt and also a creditor thereof, and her husband, creditor, on February 1, 1919 began a proceeding in the state court for a dissolution of the bankrupt corporation. The ground upon which the application was based was that there was a hopeless diversion of views of the stockholders of equal interest and a desire to prevent waste of the corporate property. No allusion is made to the insolvency of the company but it was asserted that, if the company continued with such divided ownership of stock and management, insolvency might result. The petition in the state court was made returnable on February 24, 1919. On February 19, 1919, this petition in bankruptcy was filed. It is instituted by the stockholders whose interests appear to be adverse to the appellants. On the same day an order to show cause, returnable on February 21st, was issued in the proceedings, asking for a stay of the state court proceedings. On February 26th the appellants obtained an order to show cause, returnable March 3d, for leave to intervene and set aside the bankruptcy proceedings. The District Judge, in the order now under review, permitted the appellants to file an answer 'raising the issue of fraud with respect to the admission in writing of the inability of the bankrupt to pay its debts and its expression of willingness to be adjudicated a bankrupt. ' The order stays the proceedings in the state court for dissolution, and denied the application of the appellants to dismiss the proceedings in bankruptcy.

It is not disputed but that a petition in bankruptcy was filed with a view to the liquidation of the affairs of the bankrupt corporation within the jurisdiction of the United States District Court rather than the Supreme Court of the state. It is asserted that the corporation is solvent, but it does appear by the schedules in bankruptcy that it owed $22,809.97 as against cash assets of $5,865.86, and motion picture films with an uncertain value. The assets are said to be 'undeterminable.' At the time of the filing of the petition in bankruptcy, the corporation was not in a position or condition to continue business, and the desire to wind up its affairs was not only necessary, but seemed to be the wish of all the parties concerned. One faction attempted it in the state court; the other faction with frankness of statement, says it chose the federal court, because it deemed that court 'better adapted to preserve the rights of all parties. ' We are of the opinion that it was unnecessary to justify a choice, for the petitioners in bankruptcy have the unchallengeable right to proceed by filing this petition. The institution of the proceedings in the state court is not a bar to maintenance of this petition in bankruptcy. Insolvency need not be alleged or shown to successfully maintain a petition in bankruptcy, if the corporation is unable to meet its obligations as they mature and arise, and this appears to be the fact here. There are many allegations and denials of fraud on both sides, but through it all there seems to be the common wish to liquidate the affairs of the bankrupt.

The appellants contend that a fraud is being committed or consummated by this petition in the federal court, and that this is sufficient ground for a dismissal of the petition. In support of this contention we are referred to Zeitinger v. Dry Goods Co., 244 F. 719, 157 C.C.A. 167. In that case a fraud was established by a decree of a state court after a trial which lasted for four weeks. A director was ousted by the state court for waste and mismanagement, and a receiver was appointed to enforce the decree, and the directors were held liable for a considerable sum of money. At the time the petition in bankruptcy was filed, the affairs of the corporation had been taken from the directors by a final decree of the state court, and the losses of the corporation were decreed to be due and owing from its stockholders and assessed against them. The court refused to take jurisdiction of the petition in bankruptcy, which was authorized by the same board of directors, and thus permit the instrumentality of the Bankruptcy Law to further their fraudulent purposes.

In the case at bar the directors can at least be said to be holding office as de facto officers. They, under oath, say that the corporation is unable to pay its debts in full, and ask the protection of the bankruptcy court. This is sufficient to require the bankruptcy court to take jurisdiction. Under these circumstances, it cannot be said to be a fraud to proceed in winding up the affairs of the corporation by bankruptcy proceedings, rather than through the medium of the state law in granting a dissolution of the corporation. A choice of a forum, under the circumstances disclosed by the affidavits in the record, in itself, is not a fraud, and would not warrant the District Judge in refusing jurisdiction.

Where the act of bankruptcy is a written admission, as the statute provides (section 3a (5) Comp. St. Sec. 9587), the question of solvency is immaterial. Matter of Cohn, 227 F. 843, 142 C.C.A. 367; West Co. v. Lea, 174 U.S. 590, 19 Sup.Ct. 836, 43 L.Ed. 1098. In re Moench & Sons Co., 130 F. 685, 66 C.C.A. 37, this court held that the fact that the property of the corporation was in the possession of receivers appointed in the state court did not affect the jurisdiction of the court of bankruptcy to adjudicate such corporation a bankrupt. It was further held that an admission in writing of inability to pay its debts, and its willingness to be adjudicated a bankrupt on that ground, prevented a creditor from proving the solvency as a defense. The court said:

'It would also seem to be reasonable to hold that the power to make the admission in writing could be exercised by the same officers who have the power to make a general assignment, and, in the absence of statute or by-law regulating the subject, such power resides in the directors. * * * It is no doubt true that by committing either the fourth or fifth acts of bankruptcy, when three creditors stand ready at once to take advantage of it by filing a petition, the corporation achieves the object which the act forbids it to secure by its own voluntary petition, but its doing so is not such a 'fraud upon the act' as to prevent the application of the plain language of the act to the facts presented.'

Even where a temporary receiver is appointed for a corporation the corporation still has the right to exercise its corporate powers, except as to the matters specially confided to the receiver by the court. Sigua Iron Co. v....