In re Paramount Publix Corporation

• Decision Date: 10 February 1936
• Docket Number: No. 271.,271.
• Citation: 82 F.2d 230
• Parties: In re PARAMOUNT PUBLIX CORPORATION. HILLES et al. v. WISEMAN.
• Court: U.S. Court of Appeals — Second Circuit

82 F.2d 230 (1936)

In re PARAMOUNT PUBLIX CORPORATION.

HILLES et al. v. WISEMAN.

No. 271.

Circuit Court of Appeals, Second Circuit.

February 10, 1936.

Proskauer, Rose & Paskus, of New York City (Joseph M. Proskauer and Jacob P. Aronson, both of New York City, of counsel), for appellant.

Root, Clark, Buckner & Ballantine, of New York City (Arthur A. Ballantine, of New York City, of counsel), for appellees, Charles D. Hilles and Eugene W. Leake, as Trustees of Paramount Publix Corporation.

Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

MANTON, Circuit Judge.

The estate of the debtor was placed in the hands of the court in the early part of 1935 in an equity receivership. Thereafter, trustees in reorganization proceedings under section 77B of the Bankruptcy Act, as added by Act June 7, 1934, § 1, 48 Stat. 912 (11 U.S.C.A. § 207), were appointed. The estate in equity receivership was turned over to the trustees, the appellees in this proceeding. The trustees, pursuant to court authorization, instituted three suits in the state court against former officers, directors, and bankers of the debtor corporation seeking to recover, because of certain transactions, large sums of money for the debtor's estate. The appellant, Sir William Wiseman, having been an officer of the debtor until five months after the institution of the 77B proceedings, is a defendant in two of these suits. An order was entered for the examination of 70 persons including the appellant, under section 7 (9) and section 21a of the Bankruptcy Act, as amended (11 U.S.C.A. §§ 25 (9), 44 (a) and the appellant moved to vacate the order so far as it was applicable to him, and to set aside a subœna which was served pursuant thereto.

The plan of reorganization for the debtor was confirmed April 4, 1935. June 17, 1935, the District Court entered a turnover order which directed the trustees to turn over to the debtor the assets and property tangible and intangible of every kind and description except the actions, claims, and causes of action arising out of the transactions with respect to which the three suits mentioned above had been instituted in the state court. The order reserved to the trustees the right to prosecute such suits as though no plan of reorganization had been confirmed, and stipulated that the proceeds of the reserved actions should be paid over by the trustees to the debtor at such time and in such manner as the court might from time to time determine. The order relieved the trustees of any other duties in the administration of the debtor's estate, provided that the debtor's possession of its assets and the operation of its business should be free from further court control, except as necessary to the execution of the plan of reorganization, and lifted the injunction on the debtor's use and disposal of his property. The injunction was continued in so far as it restrained stockholders and creditors of the debtor from attaching or levying on its property until after final decree in the proceedings. The court reserved jurisdiction to fix and direct the payment of administration expenses, allowances, and fees for services rendered in the reorganization, to make orders disposing of claims filed and not yet settled, to permit additional claims to be filed nunc pro tunc and to make orders deemed proper by the court as to the issuance of new securities distributable therefor, and to make orders on certain other matters. The court specifically reserved jurisdiction to make orders authorizing the trustees to conduct examinations under sections 7 (9) or 21a of the Bankruptcy Act. Finally, there was reserved jurisdiction to enter a final decree discharging the debtor from its debts and liabilities existing prior to the closing time and terminating and ending all rights and interests then existing of its stockholders, except as provided in the plan, discharging the trustees and closing the case. The debtor, with its name changed, became the new company under the plan.

The conduct of the suits in the state court was left in the hands of the trustees because some of the defendants in the suits were to be officers and directors of the new company. This provision for the prosecution of the suits by trustees was embodied in the plan and carried out in the turnover order as stated above. The order questioned here was entered after the turnover order pursuant to the jurisdiction reserved therein.

Section 21a of the Bankruptcy Act, as amended (11 U.S.C.A. § 44 (a), provides: "A court of bankruptcy may, upon application of any officer, bankrupt, or creditor, by order require any designated person, including the bankrupt and his wife, to appear in court or before a referee or the judge of any state court, to be examined concerning the acts, conduct, or property of a bankrupt whose estate is in process of administration under the provisions of this title."

This section applies to proceedings under section 77B. In re Fox Metropolitan Playhouses, Inc., 74 F.(2d) 722 (C.C.A.2).

There is a controversy here, however, as to (a) whether the estate is still in the process of administration, and (b) whether the order was improper as granted for the sole purpose of enabling the trustees to prepare their pending suits for trial.

The estate is still in the process of administration. The court still retains control over an important asset of the estate, namely, the causes of action set up in the three suits. Section 77B (h) of the Bankruptcy Act (11 U.S.C.A. § 207 (h) provides: "Upon the termination of the proceedings a final decree shall be entered discharging the trustee or trustees, if any * * * and closing the case." See, also, section 2 (8) of the act (11 U.S.C.A. § 11 (8), giving the bankruptcy court jurisdiction to "close estates, whenever it appears that they have been fully administered, by approving the final accounts and discharging the trustees, and reopen them whenever it appears they were closed before being fully administered." These sections contemplate a distinction between the conclusion of the administration of the estate and a formal closing of the estate. There can be a time when the estate is fully administered and yet not closed. Thus the statement in Skubinsky v. Bodek (C.C.A.3) 172 F. 332, 338, 24 L.R.A.(N.S.) 985, 19 Ann.Cas. 1035, that a witness may be summoned at any time after the commencement of proceedings until the estate is closed by order of the court may go too far. However, as long as there is an asset, tangible or intangible, in the court's control, the estate may be...