In re Kansas City Journal-Post Co.

• Decision Date: 11 August 1944
• Docket Number: No. 12793.,12793.
• Parties: In re KANSAS CITY JOURNAL-POST CO. BOSTIAN v. SCHAPIRO.
• Court: U.S. Court of Appeals — Eighth Circuit

144 F.2d 812 (1944)

In re KANSAS CITY JOURNAL-POST CO.

BOSTIAN v. SCHAPIRO.

No. 12793.

Circuit Court of Appeals, Eighth Circuit.

August 11, 1944.

A. J. Granoff, of Kansas City, Mo., (Samuel W. Sawyer and Claude A. Ferguson, both of Kansas City, Mo., on the brief), for appellant.

John W. Oliver, of Kansas City, Mo. (R. B. Caldwell, of Kansas City, Mo., on the brief), for appellee.

Before GARDNER, JOHNSEN, and RIDDICK, Circuit Judges.

JOHNSEN, Circuit Judge.

The trustee of the Kansas City Journal-Post Company, bankrupt, petitioned the referee for a summary order against Morris Schapiro to turn over $24,000 alleged to belong to the estate. To a show-cause order, Schapiro responded that he had legal title to the funds and was an adverse claimant, and he asked that the trustee's petition therefore be dismissed for want of summary jurisdiction. On a preliminary inquiry, the referee held that the matter properly was cognizable in summary jurisdiction and ordered that the cause proceed to trial on its merits. Schapiro petitioned for review; the District Court reversed, 51 F.Supp. 1009, 1017, 1018; and the trustee has appealed.

The principles governing the exercise of summary jurisdiction in bankruptcy have been quite fully stated by the Supreme Court. The bankruptcy court has no summary jurisdiction to deal with a controversy to property of which the court has neither actual nor constructive possession. Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 481, 60 S.Ct. 628, 84 L.Ed. 876. It does not have constructive possession of property held by a third party under a substantial adverse claim of right. Taubel-Scott-Kitzmiller Co. v. Fox, 264 U.S. 426, 432, 433, 44 S.Ct. 396, 68 L.Ed. 770. A substantial adverse claim exists "when the claimant's contention `discloses a contested matter of right, involving some fair doubt and reasonable room for controversy' * * * in matters either of fact or law." Harrison v. Chamberlin, 271 U.S. 191, 195, 46 S.Ct. 467, 469, 70 L.Ed. 897. There is no substantial adverse claim where the contention is "on its face made in bad faith and without any legal justification", May v. Henderson, 268 U.S. 111, 119, 45 S.Ct. 456, 460, 69 L.Ed. 870, or where it is "so unsubstantial and obviously insufficient, either in fact or law, as to be plainly without color of merit, and a mere pretense." Harrison v. Chamberlin, supra. The court therefore is "not ousted of its jurisdiction by the mere assertion of an adverse claim; but, having the power in the first instance to determine whether it has jurisdiction to proceed, the court may enter upon a preliminary inquiry to determine whether the adverse claim is real and substantial or merely colorable. And if found to be merely colorable the court may then proceed to adjudicate the merits summarily; but if found to be real and substantial it must decline to determine the merits and dismiss the summary proceeding." Harrison v. Chamberlin, supra, 271 U.S. at page 194, 46 S.Ct. 468, 70 L.Ed. 897.

The trustee here sought to sustain summary jurisdiction on the preliminary inquiry, by offering all the evidence taken in No. 12,791, In re Kansas City Journal-Post Co. (Bostian v. Schapiro), 8 Cir., 144 F.2d 791, this date decided, which was received without objection to its competency or relevancy on the part of Schapiro. This evidence has been set out rather fully in our opinion in No. 12,791. Only the part which immediately bears upon Schapiro's contention of being an adverse claimant to the $24,000 need be referred to here.

Some time before the bankruptcy, Schapiro had purchased from a third party all the secured bonds, some unsecured notes, and the capital stock of the insolvent newspaper corporation, for a price of $100,000. The seller was interested, however, in having publication of the newspaper continued as long as possible, and the purchase agreement therefore provided that, as a condition of the sale and as part of the consideration for the transaction, the purchaser would be required to pay into the treasury of the corporation an additional $100,000 in new working capital, for which the corporation was to issue him 500 more shares of capital stock. This had been duly done at the time the deal was closed.

The deal had been engineered by a man named Newman, and, according to the testimony of Schapiro and Newman, they had an oral arrangement between them by which Schapiro was to take the bonds and the notes, and Newman was to have the capital stock with the accompanying right to control and operate the corporation. Under their arrangement, Schapiro was to pay $176,000 of the $200,000 consideration for the bonds and notes, and Newman was to pay the other $24,000 for the stock. The effect of their testimony was that Schapiro had merely advanced the $24,000 for Newman when the deal was closed.

The stock had been assigned in blank and delivered to Schapiro on the closing...