In re Lustron Corp.
| Decision Date | 23 October 1950 |
| Docket Number | 10213.,No. 10203,10203 |
| Citation | 184 F.2d 789 |
| Parties | In re LUSTRON CORP. RECONSTRUCTION FINANCE CORP. v. LUSTRON CORP. |
| Court | U.S. Court of Appeals — Seventh Circuit |
COPYRIGHT MATERIAL OMITTED
Lee Walker, Stephen R. Chummers, Walter Sczudlo, Reconstruction Finance Corporation, all of Chicago, Ill., Frank Harrison, George Cameron, Cleveland, Ohio, James W. Shocknessy, Columbus, Ohio, for appellant.
Michael Gesas, Leonard Gesas, William S. Collen, Martin J. McNally, Raymond F. Hayes, J. H. Schwartz, Jacob Cohen, all of Chicago, Ill., for appellees.
Before KERNER, FINNEGAN and LINDLEY, Circuit Judges.
On February 21, 1950, the Reconstruction Finance Corporation filed a complaint in the United States District Court for the Southern District of Ohio, in which it sought, first, judgment upon an alleged indebtedness of Lustron Corporation, Inc., an Illinois corporation, second, foreclosure of alleged liens on property owned by Lustron, third, receivership in equity to marshal and distribute all other assets of Lustron under the direction of the court, on the ground that that corporation was insolvent. The court, on March 6, 1950, having found that the properties and business of Lustron should be cared for and preserved as an entirety, appointed a receiver of all property of whatever kind belonging to it and restrained it and all other persons from interfering with the receiver's possession and from instituting or prosecuting any action at law or in equity against the defendant corporation.
On March 4, 1950, the court entered judgment against Lustron for $36,593,969.93, and on March 30, a decree of foreclosure of numerous mortgages of RFC purporting to cover all the chattel property owned by Lustron on March 6, 1950, and then located on its factory site in Franklin County, Ohio, and, in default of payment of the indebtedness, directed sale of the mortgaged property, without appraisal, by the United States Marshal, subject, however, to confirmation by the court. On May 17, 1950, upon application of the receiver for instructions as to disposition of property in his possession "not covered by the various mortgages to the RFC" the court directed the receiver to sell as a unit, without appraisal, the inventory, including raw steel, goods in process and completed, production and packing material, trucks, supplies and perishable tools, stationery and office supplies, "etc." The marshal advertised the allegedly mortgaged property for sale on June 6, 1950 and, on that date, reported that the highest and best bid was that of RFC in the amount of $6,000,000. The receiver reported his sale of the property not subject to the mortgages on the 6th day of June, 1950, to the Lafayette Steel Company, Inc., subject to confirmation by the court.
In the meantime, after the two sales but before approval of either, on June 8, 1950, certain creditors of Lustron filed in the United States District Court for the Northern District of Illinois, a petition for its adjudication in bankruptcy and, at the same time, a petition for a receiver and a restraining order. They averred that, as to all unincumbered assets, the pending Ohio cause constituted a general insolvency proceeding in equity; that there was then in the hands of the Ohio receiver unincumbered and unapplied cash in excess of $1,500,000, and that, if RFC should attempt to secure application of that amount upon the unsatisfied portion of its judgment, preferential treatment of RFC over other creditors of Lustron by means of legal proceedings in violation of the Bankruptcy Act would result; that the assets sold to Lafayette were unincumbered; that the $645,000, proceeds of sale thereof, if applied toward reduction of RFC's debt, would likewise effectuate an illegal preference to RFC, to the irreparable damage of all other creditors and the bankrupt's estate; that it was necessary, in order properly to protect the bankrupt estate, to conduct examination of officers and associates of RFC and of Lustron in conformity with the provisions of the Bankruptcy Act, 11 U.S.C.A. § 1 et seq., in order to determine the true amount of the liabilities and incumbrances of the bankrupt, and to preserve the status quo until proper investigation into all questions could be completed, and that unless restrained the said sales would be approved, to the irreparable injury of the estate.
The Bankruptcy Court, on June 8, 1950, entered a restraining order as prayed, finding the facts to be as averred and restraining RFC, the Ohio receiver and all others from procuring confirmation of either of the sales until the further order of the bankruptcy court. Notice of the order was served upon the receiver and RFC, but despite the restraint, the Ohio court, on June 12, confirmed the sale to RFC of the allegedly incumbered property and that to Lafayette of the unmortgaged property. However, the receiver refused to complete his sale.
On the same day, June 12, 1950, RFC filed in the bankruptcy court its motion to dissolve the restraining order. On June 23, the receivers in bankruptcy filed their answer to this motion, in which they averred that the alleged liens of RFC were invalid as to the bankrupt estate, in that the mortgages were not in compliance with but in violation of the laws of Illinois and Ohio, did not sufficiently identify the property intended to be incumbered, attempted to create liens upon after-acquired property, and ran for periods of time beyond those permitted by the laws of Ohio; that RFC had wrongfully dominated Lustron in procuring the judgment of foreclosure in the Ohio court, and that the insolvency proceedings were voidable in bankruptcy.
An adjudication in bankruptcy had been entered on June 12, 1950, and the court had thereupon entered an order of reference to the referee, in accord with the Bankruptcy Act. It included in such reference the power to hear and make recommendations upon issues raised by the motion to dissolve the restraining order and the answers thereto. After protracted hearings, the referee approved the election of trustees and denied the motion for dissolution of the restraining order. This action was approved by the District Court. On June 20, 1950, RFC filed a motion to transfer the bankruptcy cause to the District Court for the Southern District of Ohio and this the court denied. RFC appeals from each order.
RFC now contends that the Bankruptcy Court was without jurisdiction to enter the restraining order of June 8, 1950, for the reason that it had no right to interfere with the proceeding to enforce the liens of RFC in the District Court in Ohio and for the further reason that there was no equity for the bankrupt estate in the property mortgaged to RFC. It urges also that the order was invalid because: it was entered without notice, was not set for hearing at a fixed time or at the earliest possible moment, no security was required of the petitioners and the order failed to include sufficient legal reasons for its issuance. It insists that the court erred also in refusing to transfer the bankruptcy cause to Ohio.
Under Section 2 of the Bankruptcy Act, the courts of the United States are vested with jurisdiction in bankruptcy to adjudge persons bankrupt, allow and disallow claims, appoint receivers to take charge of the property of the bankrupt, cause the estate to be collected, reduced to money and distributed, determine controversies in relation thereto, enforce obedience to all lawful orders and, by Section 2, sub. a(15), to make such orders, issue such process and enter such judgments in addition to those specifically provided as may be necessary for enforcement of the Act, provided, however, that "an injunction to restrain a court may be issued by the judge only". The proceeding carrying those powers into execution is one in rem, equitable in nature, administered in accord with the general principles and practice of equity, Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1049, though it is not a suit in equity but a statutory proceeding. Columbia Gas & Electric Corp. v. American Fuel & Power Co., 322 U.S. 379, 64 S.Ct. 1068, 88 L.Ed. 1137.
Under Section 70, the trustee in bankruptcy is automatically vested by operation of law with title to all the bankrupt's property as of the date of the filing of the petition. The section expressly provides that this title shall not be affected by prior possession of a receiver or other officers of any court. Under the section, as amended by the Act of March 18, 1950, the trustee is also vested, as of the date of bankruptcy, with all the rights, remedies and powers of a creditor holding a lien thereon, legal or equitable, whether or not such creditor exists, as to all property of the bankrupt, whether or not coming into possession or control of the court.1 The trustee has the right to avoid any transfer which, under any state law, is fraudulent or, for any other reason, voidable as against creditors of the debtor. By Section 60 he is empowered to avoid preferential transfers under the conditions and limitations therein provided. The various provisions of the Act reflect a well coordinated general plan for the accomplishment of equal distribution of the bankrupt's property amongst the bankrupt's creditors. The trustee, as the hand of the court, collects the assets, protects them, and brings them before the court for final distribution; he is trustee for all who have interests, according to those interests. In re Ducker, 6 Cir., 134 F. 43. Once a petition has been filed, the court's exclusive and paramount jurisdiction extends to all the bankrupt's property, except as otherwise provided in the Act, whether within or without the district where the proceedings are commenced. Isaacs v. Hobbs Tie & Timber Co., 282 U.S. 734, 51 S.Ct. 270, 75 L.Ed. 645. In the position of a lien-holder under legal or equity proceedings, the trustee has all the rights that such a lien creditor...
To continue reading
Request your trial
-
United States v. State of Washington, Civ. No. 9213—Phase I.
... ... Bardahl Int'l. Corp., 72 Wash.2d 109, 115, 431 P.2d 961, 967-8 (1967), which added a fourth question with respect to collateral estoppel which must also be answered in ... This court may enjoin interference with property which is under the control of this court, and punish violations of such injunctions. In re Lustron Corp., 184 F.2d 789 (7th Cir. 1950), cert. den., 340 U.S. 946, 71 S.Ct. 531, 95 L.Ed. 682 (1951); United States v. Dean Rubber Manufacturing Co., ... ...
-
MATTER OF CLAWSON MEDICAL, REHABILITATION
... ... See 11 U.S.C. § 1106(5) and In re Auto-Train Corp., 6 B.R. 510, 3 C.B.C.2d 239, 244 (Bkrtcy.D.D. C.1980). A preliminary injunction will also protect the debtor's patients and employees from having ... is a party plaintiff or defendant." § 2-201(a)(9). See also Bankruptcy Act § 2(a)(15) and In re Lustron Corp., 184 F.2d 789 (7th Cir. 1950) ... In discussing § 1471(b) jurisdiction Collier states that "jurisdiction will exist in the ... ...
-
Diners Club, Inc. v. Bumb
... ... § 516(4), whenever such stays are necessary to conserve the assets of the estate, Steelman v. All Continent Corp., 301 U.S. 278, 57 S.Ct. 705, 81 L.Ed. 1085 (1937); In re Lustron Corp., 184 F.2d 789 (7th Cir. 1950), or to prevent interference with the orderly ... ...
-
United States v. Speers
... ... United States v. Sands, 174 F.2d 384, 385 (C.A.2d Cir.), rejecting contrary dictum in In re Taylorcraft Aviation Corp., 168 F.2d 808, 810 (C.A.6th Cir.) ... In amending the Bankruptcy Act in 1950, Congress deleted from § 70, sub. c the phrase ... denied, 343 U.S. 927, 72 S.Ct. 761, 96 L.Ed. 1338; McKay v. Trusco Finance Co., 198 F.2d 431, 433 (C.A.5th Cir.); In re Lustron Corp., 184 F.2d 789 (C.A.7th Cir.), cert. denied sub nom. Reconstruction Finance Corp. v. Lustron Corp., 340 U.S. 946, 71 S.Ct. 531, 95 L.Ed. 682 ... ...