In re SW Straus & Co.
| Decision Date | 31 January 1934 |
| Citation | 6 F. Supp. 547 |
| Parties | In re S. W. STRAUS & CO., Inc. |
| Court | U.S. District Court — Southern District of New York |
Archibald Palmer, of New York City, for petitioner.
Samuel L. Chess, of New York City, for creditors.
An involuntary petition in bankruptcy was filed in this court against S. W. Straus & Co., Incorporated, on March 3, 1933. An answer controverting the allegations of the petition was filed in behalf of the alleged bankrupt, and the issues are now awaiting trial. On November 18, 1933, Gebauhr and others commenced a suit in equity in this court, naming the alleged bankrupt and many others as defendants. The present motion is by an alleged creditor of the alleged bankrupt, who has intervened in the bankruptcy cause, to stay proceedings in the equity suit until after the trial of the issues in the bankruptcy cause.
The bill by Gebauhr is long and discursive. In general it is averred that the plaintiffs and many others bought bonds from the alleged bankrupt, the bonds being those of corporations owning real estate; that they were led to believe that the alleged bankrupt guaranteed the bonds; that most of the bonds fell into default; that the alleged bankrupt then caused the formation of several committees, ostensibly to enforce the rights of the bondholders but in reality as part of a scheme to cover up alleged frauds in the sale of the bonds, to shield the alleged bankrupt from liability to purchasers of the bonds, and to reap further profits in the operation and reorganization of the properties for the benefit of concerns and persons formerly connected with the alleged bankrupt; that many bondholders have deposited bonds with the committees; and that the latter are not acting in the interests of the bondholders but in the interests of the alleged bankrupt or those connected with it. The relief prayed for includes an injunction against further action on the part of the committees, an accounting, a discovery of the lists of bondholders, the removal of the committees, and the appointment of a receiver or substituted trustee to take possession of the deposited bonds and other property held by the committees. No process has yet been served on the alleged bankrupt, nor have any proceedings for relief pending the suit been brought.
The power of the bankruptcy court to stay suits brought in other courts, state or federal, relates to two types of cases. The first is the restraining of suits brought against the bankrupt on claims that in their nature are dischargeable in bankruptcy. This power is expressly conferred by section 11a of the Bankruptcy Act (11 USCA § 29 (a). The purpose is to relieve the bankrupt from being unnecessarily harassed by creditors pending his application for discharge. In re Nuttall (D. C.) 201 F. 557, 559. The exercise of this power is an everyday occurrence; as a general rule the bankrupt himself is the party who invokes it and the suit involved is generally a suit to establish a personal liability. The present application is obviously not of this sort, though both the moving party and the plaintiffs refer in their memoranda to the provisions of section 11.
The second is the restraining of suits that tend to impair or defeat the paramount jurisdiction of the bankruptcy court in administering the bankrupt estate. The source of this power is the inherent right and duty of the court to protect assets in its custody, together with the omnibus authority given in section 2 (15) to make such orders as may be necessary to enforce the provisions of the act (11 USCA § 11 (15). New River Coal Land Co. v. Ruffner (C. C. A.) 165 F. 881, 886; In re Hoey, Tilden & Co. (D. C.) 292 F. 269; In re...
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