In re Lustron Corp.

Decision Date10 November 1950
Docket NumberNo. 10212.,10212.
Citation184 F.2d 798
PartiesIn re LUSTRON CORP. LA FAYETTE STEEL CO. v. LUSTRON CORP.
CourtU.S. Court of Appeals — Seventh Circuit

Louis M. Mantynband, Sidney R. Zatz, G. Gale Roberson, all of Chicago, Ill., Benjamin H. Schwartz, Cleveland, Ohio, Henry J. Shames, Chicago, Ill., of counsel, for appellant.

Joseph H. Schwartz, Jacob Cohen, Michael Gesas, Leonard Gesas, William S. Collen, Martin J. McNally, Raymond F. Hayes, all of Chicago, Ill., for appellee.

Before KERNER, FINNEGAN and LINDLEY, Circuit Judges.

LINDLEY, Circuit Judge.

This appeal grows out of the proceedings involved in Nos. 10203 and 10213. Consequently the facts related in our opinion disposing of those two appeals are included in this opinion by way of reference.

After the entry of the restraining order by the bankruptcy court on June 8, 1950, appellant, Lafayette Steel Company, Inc., hereinafter referred to as Lafayette, filed a petition to modify the order to the extent necessary to permit the receiver in the Ohio court to deliver the property for which Lafayette had bid $645,000 at the receiver's sale, to the bidder. Lafayette also made a motion for leave to intervene in the bankruptcy proceedings. The court, on July 6, 1950, holding that Lafayette was not a party in interest and not entitled to intervene, dismissed the petition and denied intervention. From this order, this appeal is taken.

Appellant contends that it is a bonafide purchaser of the property in question at a judicial sale and entitled, as a matter of law, to have the sale confirmed, irrespective of the intervention of bankruptcy, that the institution of bankruptcy did not deprive the Ohio court of jurisdiction to confirm the sale and that it had a right to intervene to obtain modification of the injunction.

Bearing in mind the facts that appear in our opinion in 7 Cir., 184 F.2d 789, we think it clear that the court rightfully denied the petition for modification of the injunction. We have seen that the Ohio proceeding was trifold in character. RFC there sought, first, judgment upon its indebtedness, second, foreclosure of its purported mortgages, and, third, a proceeding in rem, whereby the court took possession of all the assets located in that jurisdiction for the benefit of all creditors, appointed a receiver and gave to him the custody of such assets and all the power of a receiver in equity in insolvency proceedings. We have also seen that general assets "not covered by the mortgages" were ordered sold; that these belonged to the general assets and, therefore, to the unsecured creditors in bankruptcy, in case such proceedings should be instituted; that such general assets had been sold to Lafayette, subject to confirmation by the court; that the sale had not been confirmed when the bankruptcy proceedings were instituted; that the bankruptcy court enjoined confirmation of the sale and that the receiver in Ohio, in deference to the injunction, refused to deliver the assets to Lafayette or to accept the unpaid portion of the purchase price.

It is well established that where property of the debtor later adjudged a bankrupt is in the hands of an equity receiver in an equity insolvency proceedings, where no lien exists upon the general assets involved antedating bankruptcy by more than four months, the bankruptcy court's jurisdiction over the assets in the hands of a non-bankruptcy receiver is paramount and exclusive. Thus, in Taylor v. Sternberg, 293 U.S. 470, 55 S.Ct. 260, 261, 79 L. Ed. 599, the court said: "Upon such filing, the jurisdiction of the bankruptcy court becomes paramount and exclusive; and thereafter that court's possession and control of the estate cannot be affected by proceedings in other courts, whether state or federal. (Citing cases.) This applies while the possession is constructive as well as when it becomes actual. (Citing cases.) * * * In the present case, with the supervening bankruptcy, the possession of the state court came to an end, and that of the bankruptcy court immediately attached." And 293 U.S. at page 473, 55 S.Ct. at page 262: "Thereafter, the estate in its entirety was held by the receiver as a mere repository for the bankruptcy court and therefore not adversely;".

The law is well stated in In re Diamond's Estate, 6 Cir., 259 F. 70, 73, where the court announced: "Upon the adjudication of bankruptcy, the District Court acquired jurisdiction essentially exclusive to administer the estate of the bankrupts generally, including the determination of claims to or liens upon their property, as well as questions of disbursement and distribution generally. * * * This exclusive jurisdiction the bankruptcy court was not at liberty to surrender * * *; and after bankruptcy supervened the state court (broadly speaking) no longer had power, unless under circumstances of emergency not applicable to the order here, to so dispose of the bankrupts' estate, in whole or in part, as to deprive the bankruptcy court of power to determine finally the propriety of such disposition." This is in accord with Section 69, sub. d of the Bankruptcy Act, U.S.C.A. Title 11, § 109, sub. d which provides that "d. * * * Such receiver or trustee, with knowledge of the filing of such bankruptcy proceeding, shall not make any disbursements or take any action in the administration of such property without first obtaining authorization therefor from the bankruptcy court." After bankruptcy has occurred the bankruptcy court is without power to surrender its paramount and exclusive jurisdiction. Isaacs v. Hobbs Tie and Timber Co., 282 U.S. 734, 739, 51 S.Ct. 270, 75 L.Ed. 645 and United States Fidelity & G. Co. v. Bray, 225 U.S. 205, 32 S.Ct. 620, 56 L.Ed. 1055. See also In re Watts, 190 U.S. 1, 27, 23 S.Ct. 718, 47 L.Ed. 933; Lion Bonding & S. Co. v. Karatz, 262 U.S. 640, 642, 43 S.Ct. 641, 67 L.Ed. 1151 and Moore v. Scott, 9 Cir., 55 F.2d 863, 865, Brennan v. Trimpert Rough Hat Co., D.C., 8 F.Supp. 926. Consequently upon the filing of the petition in bankruptcy, followed by adjudication and election of trustees, the exclusive title vested in those trustees as of the date of the filing of the petition. Thereupon the court in Ohio, in so far as its proceeding affected general assets, lost jurisdiction to proceed and the receiver of that court held those assets subject to the demands of the trustee in bankruptcy. Consequently the court rightfully restrained the confirmation of the sale to Lafayette, for it alone had jurisdiction thereafter to administer and dispose of the general assets of Lustron.

What we have said should dispose of the case finally and completely but, perhaps, it is well to consider further some of the contentions of appellant. It insists that at the sale, subject to confirmation by the court, it became a...

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