In re San Antonio Land & Irrigation Co.

• Decision Date: 06 January 1916
• Citation: 228 F. 984
• Parties: In re SAN ANTONIO LAND & IRRIGATION CO., Limited.
• Court: U.S. District Court — Southern District of New York

228 F. 984

In re SAN ANTONIO LAND & IRRIGATION CO., Limited.

United States District Court, S.D. New York.

January 6, 1916

Guggenheimer Untermyer & Marshall, of New York City (Louis Marshall, of New York City, of counsel), for trustee in bankruptcy.

Gordon Auchincloss, of New York City, and F. C. Davis and Terrell Walthall & Terrell, all of San Antonio, Tex., for receiver.

Gordon Auchincloss, of New York City, and Coke & Coke, of Dallas Tex. (Alex. S. Coke, of Dallas, Tex., of counsel), for mortgage bondholders.

AUGUSTUS N. HAND, District Judge.

The San Antonio Land & Irrigation Company, Limited, a Canadian Corporation, was adjudicated a bankrupt in this district on the ground that it did not have its principal place of business, reside, or have its domicile within the United States, but had property within the borough of Manhattan in the Southern district of New York. Prior to the filing of the petition in bankruptcy, a creditors' bill was filed in the courts of the state of Texas by certain mortgage bondholders, alleging the insolvency of the company, praying for a receiver, and impounding the assets of the corporation within that jurisdiction. The receiver appointed by that court and the creditors appearing in that litigation have petitioned this court to vacate the order of adjudication because the bankrupt did not have its principal place of business, residence, or domicile within this district, but had its principal place of business within the state of Texas. The court referred to John J. Townsend, Esq., as special master, the questions (1) whether the bankrupt had its principal place of business within this district; and (2) whether, if the bankrupt had no principal place of business within the United States it had property within this district. He reported that the bankrupt (1) had its principal place of business in Texas, and not in Canada or New York and (2) it had certain property within this district. Upon the review of the master's report, counsel for the trustee makes two preliminary objections: First, that the adjudication cannot be attacked collaterally, but only upon appeal; second, that the moving parties have no standing to institute the proceeding.

In a voluntary proceeding, which this was, an adjudication in bankruptcy immediately follows the filing of a petition good on its face, without opportunity to any interested person to question the allegations of the petitioner. It seems to be entirely settled that allegations as to residence, domicile, and principal place of business are jurisdictional matters. A petition to vacate upon the ground that the court obtained no jurisdiction of the subject-matter, if these facts are not as alleged, is the correct practice. In re Garneau, 127 F. 677, 62 C.C.A. 403; In re Guanacevi Tunnel Co., 201 F. 317, 119 C.C.A. 554.

The bondholders have an interest which gives them a proper standing. They have provable claims under section 57 of the Bankruptcy Act, which provides for the proving of secured debts. In re Sampter, 170 F. 938, 96 C.C.A. 98; United States Trust Co. v. Gordon, 216 F. 929, 133 C.C.A. 117.

An adjudication in bankruptcy would vest the equitable title to the real estate in Texas in the trustee when appointed, unless the right of the state court receiver should prove to be superior. The latter, therefore, has an interest in attacking the bankruptcy proceeding, though it is difficult for me to reconcile some of the decisions in bankruptcy with the general rule that, to give a receiver standing in this court, an original bill must be filed and his appointment obtained in this jurisdiction. A receiver in equity, however, has been allowed to appear in bankruptcy and maintain his rights in the cases of In re Hudson River Electric Power Co. (D.C.) 173 F. 934 (which was affirmed by the Circuit Court of Appeals of this circuit 183 F. 701, 106 C.C.A. 139, 33 L.R.A. (N.S.) 454); In re Gold Run Mining & Tunnel Co. (D.C.) 200 F. 162; and Blackstone v. Everybody's Store, 207 F. 752, 125 C.C.A. 290. Upon the authority of these cases, I am of the opinion that the Texas receiver is a proper party to the proceeding.

Having disposed of these preliminary objections to the proceeding, the main question must be considered as to where the principal place of business of the corporation was situated during six months prior to the filing of the petition. This, under the decisions, is determined purely by the facts, and not by intentions of the corporate authorities or recitals in the charter, which, in this case, stated 'the chief place of business' was Toronto. Dressel v. North State Lumber Co. (D.C.) 107 F. 255; Tiffany v. La Plume Condensed Milk Co. (D.C.) 141 F. 444; Home Powder Co. v. Geis, 204 F. 568, 123 C.C.A. 94; In re Tennessee Const. Co. (D.C.) 207 F. 203.

I can have no doubt that the officers and directors desired in this case to avoid doing business in Texas, and took various steps in an attempt to prevent their acts from having such a legal effect. They incorporated the Medina Valley Irrigation Company to build a dam for irrigation and own the dam site, and the Medina Townsite Company to purchase and sell town sites. If these companies, of which the alleged bankrupt owned the stock, had been its only agencies of operation in the state of Texas, it would perhaps rightly be regarded as a mere holding company, coming within the doctrine laid down in Peterson v. Chicago, Rock Island & Pacific Ry. Co., 205 U.S. 364, 27 Sup.Ct. 513, 51 L.Ed. 841, and similar cases. It is perfectly true that, in the absence of fraud or violation of statutory prohibitions, the law will, as a rule, regard corporations as separate entities in every substantial sense, however intimately connected by stock control or common directors. Here, however, both according to the charter provisions of the bankrupt, the prospectus and interim report to the security holders, many letters and statements of its representatives, and the important fact that its bonds were the financial source of supply for all the work in Texas, the bankrupt was fact in actual control of the business there. The Medina Companies were its creatures and agents. Under these circumstances, under the doctrine laid down in the case of In re Muncie Pulp Co., 139 F. 546, 71 C.C.A. 530, it would seem to be reasonable to treat the business activities of the Medina Companies as those of the San Antonio Land & Irrigation Company, which directed their activities and held all of their stock. Palfrey was their common superintendent, and Dr. Pearson, the president of the Land Company, was the promoter and final director of the entire enterprise.

It is not necessary to regard the subsidiary corporations as nonexistent, or to disregard them in any way which would affect their separate creditors; but it is reasonable, I think, to treat them as agencies of the San Antonio Land & Irrigation Company, Limited. What impresses me most is the further circumstance that the three trustees, who held the lands and sold them for the San Antonio Land & Irrigation Company, Limited, were in reality and even in the most technical aspect mere passive trustees. They had no duties to perform, except to hold the title to the immense tract of land which was to be irrigated by the Medina Valley Irrigation Company, whose stock the San Antonio Company owned. Such a relation was no trust. There were no acts to be performed by the trustees, and no obligations, except to account for the proceeds of sales. Under the laws of most of our states, such a trust would execute itself, and the legal title would ipso facto vest in the beneficiary. No clearer case of a mere alter ego of the bankrupt, devised in the hope of avoiding the Texas law, can be imagined. The San Antonio Land & Irrigation Company, Limited, was authorized by its charter:

'To acquire by purchase or otherwise and hold lands, timber

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