IN RE SWAN-FINCH OIL CORPORATION

• Decision Date: 07 November 1962
• Parties: In the Matter of SWAN-FINCH OIL CORPORATION, Keta Gas and Oil Company, Swan-Finch Petro Chemical Corporation, Debtors.
• Court: U.S. District Court — Southern District of New York

213 F. Supp. 638

In the Matter of SWAN-FINCH OIL CORPORATION, Keta Gas and Oil Company, Swan-Finch Petro Chemical Corporation, Debtors.

United States District Court S. D. New York.

November 7, 1962.

George C. Levin and James V. Hallisey, New York City, for trustees.

Arthur D. Emil, New York City, for Peter Jakobson.

Finley, Hoffpauir, Nolan & Waldman, New York City, for Herbert Birrell, appearing specially; Aaron Waldman and Robert Nolan, New York City, of counsel.

PALMIERI, District Judge.

The Trustees, engaged in the reorganization of various corporate debtors pursuant to Chapter X of the National Bankruptcy Act, have moved for the appointment of a Receiver to manage and control certain property in New York City pending the determination of its ownership and of their right to recover damages. The property in question consists of a 14 story and penthouse apartment building located at 1050 Park Avenue in New York City.

The evidence submitted upon this motion by the Trustees justifies strong suspicion that this property has been partly owned if not controlled by Lowell Birrell, a fugitive from justice, presently reported to be residing in Rio de Janeiro, Brazil. The title to this property has been held by Herbert A. Birrell, a citizen of the United States, a lawyer, and a brother of Lowell Birrell. Herbert acquired title as a result of a corporate transfer planned and executed by Lowell in an apparently successful attempt to frustrate and defeat parties with financial claims against him. Herbert Birrell has for many years been associated with the business activities and enterprises of his brother Lowell and it is not improbable that his record ownership of this property has been a device for the protection and comfort of Lowell Birrell. Indeed, since the flight of Lowell Birrell to Brazil in 1959, to avoid prosecution for many crimes for which he stands indicted,¹ Herbert Birrell has been making periodic payments to Lowell Birrell's wife, Merrie. These payments were made through one Hugh H. Begley, who has had a long association with Lowell Birrell and his enterprises. The monies paid to Mrs. Birrell have not, in her opinion, been sufficiently large and toward the end of 1961, she had a disagreement with Herbert Birrell which led her to make threats to the effect that if she did not receive more money, she would tell everything that she knew. Indeed, she has asserted rights of ownership in this property.

This disagreement between Herbert A. Birrell and Mrs. Lowell Birrell apparently precipitated a number of strange financial transactions with respect to this building. In December 1961 Herbert Birrell successfully applied for an increased first mortgage on the property in question in the sum of $1,100,000. The existing first mortgage on the property was in the sum of $442,734.94. An equivalent amount from the new first mortgage money was paid to the prior mortgagee to liquidate it. The balance of over $650,000 has disappeared and is beyond the control of this Court except for the sum of $50,000 which appears to have been reserved for alteration of the premises. The very substantial sums making up the balance of this first mortgage money were deposited in banks situated here and in various outlying jurisdictions, and in almost every instance each bank account was closed out a short time after the money was deposited. There was no apparent business reason for mortgaging this property so heavily or for disposing of the funds in the manner indicated.

Contemporaneously with the conclusion of the mortgage transaction just described, Mr. Herbert Birrell moved from his penthouse apartment situated in the premises in question and departed for Canada. The Trustees attempted in vain to communicate with him over a period of several months and were never advised that his departure was final and irreversible. They were led to believe that he had departed for an extended hunting trip and it was only upon the argument that his attorneys appeared specially and took the position that Herbert Birrell had become a bona fide resident of Canada without any apparent intention of returning to this country. It was also stated by them that Herbert Birrell was contemplating a safari in Africa.

Upon departure from New York, Herbert Birrell transferred the management of the property to one Peter Jakobson, a tenant of the property, who is also in the real estate business. Although the form of written contract between Herbert Birrell and Peter Jakobson is that of a net lease, it is subject to cancellation upon 60 days' notice at the end of any month and upon the payment of $5,000 pursuant to a specified form of accounting. To all intents and purposes, Jakobson is the agent of Herbert Birrell.

There is little doubt, in view of the facts detailed above, that the appointment of a Receiver would be appropriate if the Court possesses the power to grant this remedy. It has been asserted, however, primarily on the basis of Section 2, sub. a(3) of the Bankruptcy Act,² that such power is lacking. Section 2, sub. a(3) expressly authorizes appointment of a receiver to take charge of the bankrupt's property until the petition is dismissed or the trustee has qualified. It is claimed that the section by necessary implication precludes appointment of a receiver in a situation such as this in which the trustee has already qualified. This argument is made in spite of Section 2, sub. a(15),³ which provides that the bankruptcy court may "Make such orders, issue such process, and enter such judgments, in addition to those specifically provided for, as may be necessary for the enforcement of the provisions of this title:" and in spite of Section 2, sub. b,⁴ which provides that "Nothing in this section contained shall be construed to deprive a court of bankruptcy of any power it would possess were certain specific powers not herein enumerated."

To give Section 2, sub. a(3) such a restrictive effect represents an overly broad reading of that section,...