In re United States Realty & Improvement Co.

Citation108 F.2d 794
Decision Date15 January 1940
Docket NumberNo. 178.,178.
PartiesIn re UNITED STATES REALTY & IMPROVEMENT CO. SECURITIES AND EXCHANGE COMMISSION v. UNITED STATES REALTY & IMPROVEMENT CO. UNITED STATES REALTY & IMPROVEMENT CO. v. SECURITIES AND EXCHANGE COMMISSION.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

White & Case, of New York City (Joseph M. Hartfield, Joseph A. Bennett, Henry M. Marx, and Charles W. Dibbell, all of New York City, of counsel), for debtor.

Chester T. Lane, Gen. Counsel, and Martin Riger, Samuel H. Levy, and Raoul Berger, all of Washington, D. C., George Zolotar, of New York City, Homer Kripke and Irving S. Rogers, both of Washington, D. C. (J. Anthony Panuch, of New York City, of counsel), for Securities and Exchange Commission.

Before SWAN, AUGUSTUS N. HAND, and CLARK, Circuit Judges.

SWAN, Circuit Judge.

This is a proceeding for an arrangement under chapter XI of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq. It was commenced by petition filed by United States Realty and Improvement Company, hereafter called the debtor. The debtor is a New Jersey corporation having its principal place of business within the city of New York; its business consists in the management and ownership of investments in real estate. It has substantial assets and liabilities and its capital stock and certain other securities are outstanding in the hands of the public. By this proceeding it seeks to obtain an extension and modification of one class of its unsecured obligations, namely, its guaranty of the publicly held mortgage certificates, in the amount of some $3,700,000, of its subsidiary, Trinity Buildings Corporation of New York (for brevity hereafter called Trinity); all other unsecured obligations the debtor proposes to pay as they fall due. The mortgage against which the guaranteed certificates were issued was to mature June 1, 1939, and the debtor's plan contemplates that the mortgagor, Trinity, will institute a proceeding under the Burchill Act, sections 121-123, N. Y. Real Property Law, Consol.Laws N.Y. c. 50, in a state court to obtain a modification of the mortgage to conform it to the debtor's guaranty as modified under the arrangement.

By order entered on May 31, 1939, the date of the filing of the debtor's petition, the district court found, among other things, that the petition was properly filed under section 322 of the Act, 11 U.S.C.A. § 722, and directed that the debtor be continued in possession of its assets and that a meeting of its creditors be convened before the court on June 28, 1939. Early in July counsel for the Securities and Exchange Commission obtained permission from the district judge to present as amicus curiae the contention that the order of May 31st should be vacated and the proceeding dismissed for lack of jurisdiction. As amicus curiae, counsel for the Commission pressed the argument at several hearings that the debtor could not properly file a petition for an arrangement under chapter XI but must resort to a reorganization under chapter X, 11 U.S.C.A. § 501 et seq., because it had securities outstanding in the hands of the public. After the judge had indicated that this contention would not be sustained, the Commission moved for leave to intervene in the proceeding for the purpose of moving to vacate the order of May 31st, to deny confirmation of the debtor's proposed arrangement and to dismiss the proceeding. After further argument the court, on July 28, 1939, entered three orders. The first granted the Commission leave to intervene for the purpose of contesting jurisdiction of the court over this proceeding under chapter XI, "and for the purpose of enabling the said Commission to appeal from any order made in this proceeding with respect thereto"; the second denied the motions of the Commission to vacate the order finding the debtor's petition to have been properly filed under section 322 and to dismiss the proceeding for lack of jurisdiction; and the third referred the proceeding to one of the referees in bankruptcy for such action as is required and permitted by the Bankruptcy Act. From the two latter orders the Commission appealed; subsequently the debtor appealed from the order allowing intervention. Thereafter the debtor moved in this court to dismiss the Commission's appeals. This motion was reserved until argument of the appeals.

These appeals raise interesting questions as to the inter-relations of chapters X and XI of the Chandler Act and as to the right of the Securities and Exchange Commission to intervene in an arrangement proceeding under chapter XI. If it be assumed that the Commission is properly here as an appellant, a majority of the court is of opinion that the orders from which it has appealed are right. The Commission attacks the jurisdiction of the court upon the theory that where a corporation seeks to effect an arrangement with respect to unsecured debts which are held by the investing public, as are the guaranteed certificates representing shares in Trinity's mortgage, it must proceed under chapter X and the court lacks jurisdiction to entertain a proceeding under chapter XI. However desirable such a limitation of the scope of an "arrangement" proceeding might be thought to be, we can find no warrant for it in the words of the statute or the history of the legislation.1 Subdivision 1 of section 306, 11 U.S.C.A. § 706 (1), provides that "arrangement" shall mean any plan of a debtor for the settlement, satisfaction, or extension of the time of payment of his unsecured debts, upon any terms; and subdivision 3 defines debtor to mean a person who could become a bankrupt under section 4 of this Act, 11 U.S.C.A. § 22, and who files a petition under this chapter. The debtor is a person who could become a bankrupt under section 4. Concededly, therefore, the literal words of the statute authorize this proceeding. It may well be that the framers of the legislation contemplated that the arrangement procedure of chapter XI would be more likely to be availed of by small corporations and the reorganization procedure of chapter X by large corporations2; but no such limitation was written into the statute. Nor do we see any compelling reason for saying that a "large" corporation cannot obtain adequate relief under chapter XI because of the existence of outstanding securities in the investing public. Indeed, the statute seems to give preference to an arrangement proceeding, for it is provided in section 130 (7) that a petition under chapter 10 must state "the specific facts showing the need for relief under this chapter and why adequate relief cannot be obtained under Chapter XI 11 of this Act title." See, also, §§ 146, 147, 11 U.S.C.A. §§ 546, 547. The latter section provides that a petition for reorganization improperly filed because adequate relief can be obtained by the debtor under chapter XI may be amended to comply with the requirements thereof and thereafter be deemed to have been originally filed thereunder. No corresponding provision is found in chapter XI. There, section 376(2), 11 U.S.C.A. § 776(2), provides for adjudication of bankruptcy or dismissal of the proceeding if confirmation of the arrangement is refused. Accordingly, we find nothing in the statute to justify acceptance of the contention that the court lacked jurisdiction to entertain this proceeding. To read into chapter XI the limitation that it may be invoked only by small corporations without publicly held securities requires legislation rather than judicial interpretation. Whether the proposed arrangement meets the requirements necessary for confirmation (section 366, 11 U.S.C.A. § 766) is a matter unrelated to jurisdiction and one upon which the district court will later have to pass when the issue of confirmation is presented. We express no opinion concerning it at the present time.

We pass now to the right of the Commission to intervene in a chapter XI proceeding. No section of that chapter confers such right. Section 208, 11 U.S. C.A. § 608, however, expressly authorizes intervention by the Commission in a chapter X proceeding upon request of the judge or upon its own motion if approved by the judge, but forbids it to appeal from any order entered in such a proceeding. The inclusion in chapter X of express permission to intervene and the omission of such a provision in chapter XI raises a strong implication against intervention by the Commission in the latter type of proceeding. In an arrangement proceeding the Commission has no advisory duties to perform such as are provided in section 172, 11 U.S.C.A. § 572. The Commission argues that in order to protect its right to intervene in a chapter X proceeding it must be allowed to intervene in any chapter XI proceeding which it believes ought properly to have been brought under chapter X. But this proceeds upon the false premise that the Commission has a present right to protect. It has no such right. Its only right is to intervene if a chapter X proceeding is pending. Until such a proceeding is instituted, the Commission has no interest whatever to protect. It cannot require a chapter X proceeding to be instituted, if the present chapter XI proceeding be defeated. Dismissal of the present proceeding would not necessarily result in a chapter X proceeding by either the debtor or its creditors; neither it nor they are compelled to initiate any court proceeding, and if one were initiated it might be in straight bankruptcy rather than in reorganization. The case at bar is not like those of Pennsylvania v. Williams, 294 U.S. 176, 55 S. Ct. 380, 79 L.Ed. 841, 96 A.L.R. 1166, and Gordon v. Ominsky, 294 U.S. 186, 55 S.Ct. 391, 79 L.Ed. 848, in each of which the intervening representative of the Commonwealth of Pennsylvania claimed a right to the full possession and control of the assets of the insolvents, not merely a right to advise or to protect the public interest. The Commission has no special interest to protect by intervention in the...

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10 cases
  • Securities and Exchange Commission v. United States Realty Improvement Co
    • United States
    • United States Supreme Court
    • May 27, 1940
    ...of Appeals for the Second Circuit reversed the order permitting the Commission to intervene and dismissed the appeal of the Commission. 108 F.2d 794. We granted certiorari April 1, 1940, the questions raised bring of public importance in the administration of the Bankruptcy Act. 309 U.S. 64......
  • Grayson-Robinson Stores, Inc. v. SECURITIES AND EXCHANGE COM'N
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    ...Chapters X and XI of the Bankruptcy Act, 48 Yale L. J. 1334 (1939). So I summoned courage to dissent, In re United States Realty & Improvement Co., 2 Cir., 108 F.2d 794, 799-802; and in due course the Supreme Court reversed in a decision by Mr. Justice Stone (with three justices dissenting)......
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    ...U. S. Realty & Improvement Co., 310 U.S. 434, 60 S.Ct. 1044, 84 L.Ed. 1293, which reversed this court's conclusion, In re U. S. Realty & Improvement Co., 2 Cir., 108 F.2d 794, that nothing could be done about a more serious gap in the Chandler Act dealing with corporate reorganizations. Now......
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