In re Pacific States Savings & Loan Co.

• Decision Date: 10 June 1939
• Docket Number: No. 33662-Y.,33662-Y.
• Citation: 27 F. Supp. 1009
• Parties: In re PACIFIC STATES SAVINGS & LOAN CO.
• Court: U.S. District Court — Southern District of California

27 F. Supp. 1009

In re PACIFIC STATES SAVINGS & LOAN CO.

No. 33662-Y.

District Court, S. D. California, Central Division.

June 10, 1939.

John L. Mace, of Los Angeles, Cal., for debtor.

Guy R. Crump, of Los Angeles, Cal., for building and loan commissioner.

John R. Layng, Franz R. Sachse, and John C. Campbell, all of Los Angeles, Cal., for A. K. McRaie et al.

Hugo H. Harris, David E. Field, and R. W. Katerndahl, all of Los Angeles, Cal., for Eggert et al.

YANKWICH, District Judge (after stating facts as above).

This is a motion to dismiss a petition for reorganization filed by certain creditors in a proceeding, in which a creditors' involuntary petition in bankruptcy has been filed against Pacific States Savings and Loan Company, a corporation, debtor and alleged bankrupt. On motion, that petition was dismissed because it appeared upon its face that the District Court for the Southern District of California had no jurisdiction over the corporation. It is conceded that, under the Chandler Act, creditors of a corporation may file a petition for reorganization. Bankruptcy Act of 1938, Secs. 126, 131, 11 U.S.C.A. §§ 526, 531. It is not necessary to determine whether, with the dismissal of the petition for involuntary bankruptcy, there remains pending before the court a proceeding in which a petition for reorganization may be filed. Were I to determine this question, I might be inclined to hold that jurisdiction to entertain a dependent proceeding disappears with the dismissal of the original proceeding. Thus, where a party is allowed to intervene in an action in aid of either side, and the original action is dismissed, intervention also fails. See Henry v. Vineland Irr. District, 1903, 140 Cal. 376, 73 P. 1061; Townsend v. Driver, 1907, 5 Cal.App. 581, 90 P. 1071; Stern & Goodman Inv. Co. v. Danziger, 1929, 206 Cal. 456, 274 P. 748.

However, we are confronted with a more fundamental objection. Section 4 of the Bankruptcy Act of 1938, in Paragraph a, says: "Any person, except a municipal, railroad, insurance, or banking corporation or a building and loan association, shall be entitled to the benefits of this Act title as a voluntary bankrupt". 11 U.S.C.A. c. 3, § 22a. Building and loan associations were placed in the exempt group by an amendment approved February 11, 1932. The effect of the amendment was to extinguish the bankruptcy power of courts over building and loan associations, even in pending cases. See Home Savings & Loan Association v. Plass, 1932, 9 Cir., 57 F.2d 117.

It is very significant that the law as it stands now, and as it has stood since 1910, excepts specifically certain corporations from the purview of the Bankruptcy Act. The effect of the exception is this: Whereas, under the law prior to the 1910 amendment, a factual situation arose which gave the court of bankruptcy the right to inquire into the nature of a corporation, so as to determine whether it did or did not have jurisdiction, that power was removed by the amendment of 1932. From that time on, where it appears on the face of a petition that a corporation is in the excepted class, the authority of the court to act is absolutely at an end. The leading case is Vallely, Trustee, v. Northern Fire & Marine Insurance Company, 1920, 254 U.S. 348, 41 S.Ct. 116, 65 L.Ed. 297. In that case, the Eighth Circuit Court of Appeals, 278 F. 1022, being unable to determine certain questions before it, certified them to the Supreme Court.

An involuntary petition had been filed against a corporation. The directors of the corporation defaulted, and an adjudication was made. The petition averred the corporate capacity of the company under the laws of North Dakota, and that it had been "engaged in the business of insuring property against loss by fire, hail, etc." No appeal was taken from the order of adjudication. Later, a motion was made to vacate the adjudication, upon the ground that the court had no jurisdiction, because the corporation was in the exempt class, and that the default of the directors of the corporation could not confer such jurisdiction. The Circuit Court, being unable to determine the matter, certified it to the Supreme Court. The Supreme Court in its opinion, written by Mr. Justice McKenna, pointed out the distinction between the law as it then stood and as it had stood prior to the 1910 amendment. After referring to certain cases, which had been cited, and in which courts had entertained proceedings to determine whether certain persons were farmers, under the exception in the statute, the court said:

"It will be observed, therefore, that the act of 1898, made jurisdiction depend upon an inquiry of fact and necessarily jurisdiction was conferred to make the inquiry, and pronounce judgment according to its result. The case, therefore, is not pertinent to, or authority upon, the case at bar. The Act of June 25, 1910, which covers the present proceeding is peremptory in its prohibition. It excludes, by section 4, insurance corporations from the benefits of voluntary bankruptcy, and by subdivision `b' prohibits them from being adjudged involuntary bankrupts. The effect of these provisions is that there is no statute of bankruptcy as to the excepted corporations, and necessarily there is no power in the District Court to include them. In other words, the policy of the law is to leave the relation and remedies of `municipal, railroad, insurance, or banking' corporations to their creditors and their creditors to them, to other provisions of law." Vallely, Trustee, v. Northern Fire & Marine Ins. Co., 254 U.S. 348, 355, 41 S.Ct. 116, 118, 65 L.Ed. 297. (Italics added)

In ascertaining the nature of a corporation, under a challenge of jurisdiction, its status under the state law which licenses it, and the business it is permitted to do under its charter, rather than what it actually does, are the determining factors. As tersely said by the court In re Union Guarantee & Mortgage Co., 1935, 2 Cir., 75 F.2d 984, 985: "Now it is the powers conferred upon the company, not its activities, which are decisive. Gamble v. Daniel 8 Cir., 39 F.2d 447; Clemons v. Liberty Savings, etc., Co. 5 Cir., 61 F.2d 448. So far as In re Supreme Lodge of Masons Annuity, D. C., 286 F. 180, holds otherwise it cannot be accepted. If a state enacts that companies having powers of a prescribed kind must be regulated, that is of course authoritative; and, if in addition it classes the company as a bank or a railroad or an insurer, that too should be authoritative. State of Kansas ex rel. Boynton v. Hayes 10 Cir., 62 F.2d 597; Security Building & Loan Ass'n v. Spurlock 9 Cir., 65 F.2d 768. This is true, not because Congress was bound to yield in such cases, but because otherwise its apparent purpose to leave the winding up of such companies to the state would not be effected; for the will of the state is no clearer to supervise the company than to class it as it does. When Congress excepted not all companies affected with a public interest, but specified kinds of such company, presumably it intended the states to define the kinds." And see Gamble v. Daniel, 1930, 8 Cir., 39 F.2d 447; Clemons v. Liberty Savings, etc., Corp., 1932, 5 Cir., 61 F.2d 448; State of Kansas ex rel. Boynton v. Hayes, 1932, 10 Cir., 62 F.2d 597; Security Bldg. & Loan Ass'n v. Spurlock, 1933, 9 Cir., 65 F.2d 768; In re Prudence Co., 1935, 2 Cir., 79 F.2d 77; Grand Lodge, Knights of Pythias v. McKee, 1938, 5 Cir., 95 F.2d 474; In re Michigan Sanitarium & Benevolent Ass'n, 1937, D.C., 20 F.Supp. 979; In re Island Mortgaging Corp., 1937, D.C., 18 F.Supp. 448. Both by the test of powers conferred and powers exercised, the debtor here is a building and loan association.

For if the petition for reorganization be studied, it becomes apparent, not only by what it sets forth, but by other documents to which it refers, and which are in this record, that, at least since 1932, this corporation has been engaged in the building and loan business, has had a certificate for that purpose from the State of California, has been subject to the supervisory powers of the State of California in that respect, and that the State of California has exercised the power which it solely has of taking it over for liquidation. To particularize: It is alleged that the corporation was organized under the laws of the State of California. It is denied that it is an insurance or banking corporation or building and loan association. The incorporation is alleged as of June 14, 1889. Significantly, the pleader also sets forth the amendment of the Articles of Incorporation in 1907, and the amendment of the Articles of Incorporation in 1932. Both of them were intended to connect up the old Articles of Incorporation with the various amendments which had been made to the building and loan association law of California. The Articles of Incorporation are broad enough to enable the corporation to engage in the building and loan business as it existed at that time. Certainly the amendments of 1932 to the articles leave no doubt as to what was intended. On the face of this petition and of the documents to which it refers, it would be the duty of the court, even without a...