In re IJ Knight Realty Corp.
Decision Date | 06 January 1967 |
Docket Number | No. 15507.,15507. |
Citation | 370 F.2d 624 |
Parties | In the Matter of I. J. KNIGHT REALTY CORP., Bankrupt. Reading Company, Appellant. |
Court | U.S. Court of Appeals — Third Circuit |
Thomas Raeburn White, Jr., Philadelphia, Pa. (Michael H. Malin, S. Laurence Shaiman, White & Williams, Philadelphia, Pa., on the brief), for appellant.
Edward L. Rogers, Atty., Dept. of Justice, Tax Div., Washington, D. C. (Richard M. Roberts, Acting Asst. Atty. Gen., Lee A. Jackson, Joseph Kovner, Attys., Dept. of Justice, Drew J. T. O'Keefe, U. S. Atty., Washington, D. C., on the brief), for appellee United States.
Owen B. Rhoads, Philadelphia, Pa. (Samuel Marx, Arthur E. Newbold, III, William J. Sharkey, Dechert, Price & Rhoads, Philadelphia, Pa., on the brief), for appellee trustee.
Before STALEY, Chief Judge and McLAUGHLIN, KALODNER, HASTIE, SMITH, FREEDMAN and SEITZ, Circuit Judges.
The issue presented on this appeal is whether appellant's claim, if proved, is entitled to the priority status accorded to costs of administration by Section 64, sub. a(1) of the Bankruptcy Act.1
The facts are not in dispute, and have been stipulated. In substance, they are as follows:
On November 16, 1962, I. J. Knight Realty Corp. filed a petition for arrangement under Chapter XI of the Bankruptcy Act. On the same day, the District Court appointed a Receiver and authorized him to operate the debtor's business, which consisted principally in the leasing of the debtor's eight-story industrial building in Philadelphia. On January 1, 1963, this building was destroyed by a fire which spread to adjoining premises and caused damage to real and personal property of The Reading Company, appellant herein, and of others.
On April 3, 1963, appellant filed a claim for damages in the amount of $559,730.83, alleging that the receiver was negligent in permitting the fire to start and "to spread far beyond its normal confines." The claim specifically recited that it was "for administrative expenses due to the negligence of the Receiver in operation of business of the debtor." Other claimants have filed 146 additional claims, similarly grounded and similarly seeking priority status as administration expenses, totalling in excess of $3,500,000. Those claims are held in abeyance by the Referee pending the ultimate disposition of the claim now on appeal.
On May 14, 1963, the debtor was voluntarily adjudicated a bankrupt. A Trustee was elected, and he moved to expunge appellant's claim on the ground that it was not an administration expense under Section 64, sub. a(1) of the Bankruptcy Act.2 The Referee expunged the claim. On petition for review, the District Court concluded that the claim was not entitled to priority as an administration expense under Section 64, sub. a(1).3 242 F.Supp. 337 (E.D.Pa.1965).
We are of the opinion that the Order of the District Court should be affirmed.
The right of a claim to priority status in a Chapter XI proceeding is controlled exclusively by Section 64 of the Bankruptcy Act by virtue of the provisions of Section 302 of the Act.4 In the matter of Chicago Express, Incorporated, 332 F.2d 276, 278 (2 Cir. 1964), cert. den. 379 U.S. 879, 85 S.Ct. 146, 13 L.Ed. 2d 86; American Anthracite & Bituminous Coal Corp. v. Leonardo Arrivabene, S.A., 280 F.2d 119 (2 Cir. 1960). Manifestly, the right to priority depends upon the ability of the appellant to bring its claim within the language of the preferential classification sought. Goldie v. Cox, 130 F.2d 690 (8 Cir. 1942).
We recently expressly ruled that expenses which "are unrelated to development, preservation or distribution of the bankrupt's assets" cannot be considered "costs and expenses of administration" within the meaning of Section 64 sub. a (1) as amended in 1962. In the Matter of Connecticut Motor Lines, Inc., 3 Cir., 336 F.2d 96 (1964).
We there said at pages 101-102:
This touchstone guide to the direction of Section 64 sub. a(1) finds support not only in the legislative history, as shown by the Court's opinion, but also in existing authority. See, American Anthracite & Bituminous Coal Corp. v. Leonardo Arrivabene, S.A., supra, 280 F. 2d at 124-126; Saper v. John Viviane & Son, Inc., 258 F.2d 826 (2 Cir. 1958); Guerin v. Weil, Gotshal & Manges, 205 F.2d 302 (2 Cir. 1953). As these cases indicate, it is not every post-petition event giving rise to a cost, expense or liability which qualifies the cost, expense or liability for priority status under Section 64 sub. a(1).
This is the standard applied by the court below. We agree with it, and with its conclusion that appellant's tort claim does not fall within the restrictive language of Section 64 sub. a(1) as an expense so related to the development, preservation or distribution of estate assets as to be deemed to have been incurred in connection therewith. Existing judicial interpretation and application of Section 64 sub. a(1) does not indicate any other result. Indeed, it is evident that the Congress knows how to assure the priorities it desires. See, In the Matter of Hudson & Manhattan Railroad Company, 178 F.Supp. 103 (S.D.N.Y. 1959), aff'd sub nom. Augus v. Stichman, 273 F.2d 707 (2 Cir. 1960); Senate Report No. 1954, accompanying the amending legislation, H.R. 5393, 1962 U.S.Code Congressional and Administrative News, pp. 2603, 2608.
Appellant seeks an application of Section 64 sub. a(1) founded upon principles, according to the authorities it cites, utilized in equity receivership proceedings. But we find no compelling persuasion in such authorities here, where we have to deal with a purposeful statutory restriction. Cf. In the Matter of the Pusey and Jones Corporation, 295 F. 2d 479 (3 Cir. 1961); In the Matter of Chicago Express, Incorporated, supra; American Anthracite & Bituminous Coal Corp. v. Leonardo Arrivabene, S.A., supra.
Federal courts cannot extend the reach or sweep of a federal statute beyond its clearly defined provisions as we recently explicitly ruled in American Dredging Company v. Local 25, Marine Division, International Union of Operating Engineers, 3 Cir., 338 F.2d 837 (1964), cert. den. 380 U.S. 935, 85 S.Ct. 941, 13 L.Ed.2d 822 (1965).
The purposeful statutory restriction, earlier, discussed, cannot be amended by judicial legislation to accomplish the result which the minority advocates.
As we said in American Dredging at page 850:
Section 64 provides that "actual and necessary expenses of preserving the estate" are entitled to a priority. The words "actual and necessary" require that the expenses be proximately related to the preservation of the estate and that they must be reasonably anticipated as a cost of operating the business. Cf. Jopek v. New York Central R. R., 353 F. 2d 778 (C.A. 3, 1965). The word "necessary" in § 162(a) of the Internal Revenue Code of 1954 has been similarly construed.
This construction adequately answers the question as to whether the...
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Brown v. Presbyterian Ministers Fund
...of substantial liability of the estate to the Reading Company. See, In re I. J. Knight Realty Corporation, 242 F.Supp. 337 (E.D.Pa.1965), 370 F.2d 624 (3 Cir. Court en banc, 1967); Reading Company v. Brown, 391 U.S. 471, 88 S.Ct. 1759, 20 L.Ed.2d 751 10 The fact that Hoffman entered into th......
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Reading Company v. Brown, 127
...would never lie under any circumstances. As to such questions, the statement of McNulta is dictum. 8. See n. 7, supra. 9 3 Cir., 370 F.2d 624, 628. 10 E.g., Texas & Pacific R. Co. v. Bloom, 164 U.S. 636, 17 S.Ct. 216, 41 L.Ed. 580; Bereth v. Sparks, 7 Cir., 51 F.2d 441; § 77(n), 11 U.S.C. §......
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In re FH McGraw & Company, 71-1900.
...interpretation of the provision as releasing the receiver from personal liability only, we do note that in In re I. J. Knight Realty Corp., 370 F.2d 624 (3d Cir. 1967), rev'd on other grounds, sub nom., Reading Co. v. Brown, 391 U.S. 471, 88 S.Ct. 1759, 20 L.Ed.2d 751 (1968), we indicated t......
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In re Good Taste, Inc.
...104(a) repealed. 23 11 U.S.C. § 503(b)(1)(A). 24 In re I.J. Knight Realty Corp., 242 F.Supp. 337 (E.D.Pa.1965). 25 In re I.J. Knight Realty Corp., 370 F.2d 624 (3rd Cir. 1967). 26 Reading Company v. Brown, 391 U.S. at 479, 88 S.Ct. 1759. 27 Reading Company v. Brown, 391 U.S. at 479, n. 7, 8......