In re Zimmermann

• Decision Date: 10 February 1933
• Citation: 4 F. Supp. 801
• Parties: In re ZIMMERMANN et al.
• Court: U.S. District Court — Southern District of New York

4 F. Supp. 801

In re ZIMMERMANN et al.

District Court, S. D. New York.

February 10, 1933.

Rogers & Whitaker and Cook, Nathan & Lehman, all of New York City (Spier Whitaker, Frederick F. Greenman, Nathan Greene, and D. William Leider, all of New York City, of counsel), for petitioners.

George V. Triplett, Jr., of New York City, and Louis Titus and Charles L. Frailey, both of Washington, D. C., for respondents.

PATTERSON, District Judge.

This is a petition filed in the bankruptcy proceeding of Zimmermann & Forshay, by Z. & F. Assets Realization Corporation and others, to enjoin the respondents from continuing further with a suit in equity brought by them in the Supreme Court of the District of Columbia. The case raises no disputed issues of fact.

Zimmermann & Forshay was a firm engaged in the sale of securities with its principal place of business in this district. On June 20, 1923, an involuntary petition in bankruptcy was filed against the partners of the firm and a receiver was appointed by this court. As is usual in the bankruptcy of such a concern, the court issued an order on the receiver's petition directing all claimants to any property in the possession or custody of the receiver, as well as all creditors, to file their claims on or before a specified date, in this case July 12, 1924. The order provided that any failing to file should be forever barred from making any claim to the property. There was no adjudication of bankruptcy. The bankruptcy proceeding terminated in a composition confirmed by the court and carried out under its orders, whereby the creditors were paid a cash dividend and all the remaining assets of the firm were transferred to Z. & F. Assets Realization Corporation, a corporation created for the purpose of liquidating the assets and distributing the proceeds among the creditors. The Z. & F. Corporation issued to the creditors certificates of beneficial interest. The receiver was discharged on November 23, 1926.

Among the assets of the bankrupt firm was a debt owed by the Deutsche Bank of Berlin. The debt arose out of a balance in marks on deposit to the credit of Zimmermann & Forshay at the outbreak of war between the United States and Germany, and the balance came to 5,091,571.70 marks. On the part of the Deutsche Bank there was no dispute as to the existence of the debt, but there was a dispute as to the amount payable, in view of the fall of the mark in relation to the dollar. Prior to bankruptcy Zimmermann & Forshay had filed with the Mixed Claims Commission, United States and Germany, a claim to recover this debt at the rate of exchange prevailing in April, 1917. They had also commenced a suit in this court against the Alien Property Custodian and the Deutsche Bank, in another effort to get the debt paid at what they regarded as a proper rate of exchange. The receiver took control of both proceedings down to December, 1924, when the claim against the Deutsche Bank was transferred, along with other property, to Z. & F. Corporation. This corporation thereafter prosecuted the claim before the Mixed Claims Commission, with the result that on June 14, 1927, an award of $817,134.87, with interest from January 1, 1920 was made in its favor. Following up the award, it filed application for payment with the Secretary of the Treasury under the Settlement of War Claims Act (50 USCA, Appendix), and the application was later allowed in the sum of $1,143,988.78, this being for the amount of the award with interest to January 1, 1928. Prior to July 10, 1929, payments on account to an extent over $400,000 had been made by the Secretary of the Treasury to the Z. & F. Corporation.

On July 10, 1929, one Doerschuck commenced a suit in equity in the Supreme Court of the District of Columbia to enjoin the Secretary of the Treasury from making further payments on the award to the Z. & F. Corporation. The ground of the suit is that the bank account in the Deutsche Bank, although in the name of Zimmermann & Forshay, had actually been held in trust by that firm for Doerschuck and many other persons. For present purposes it is unnecessary to discuss the facts said by Doerschuck to give rise to his alleged equitable interest in the bank account. It suffices to say that the alleged facts occurred prior to the bankruptcy of Zimmermann & Forshay, and that the bill of complaint has been held by the Court of Appeals of the District of Columbia to set forth a trust relationship as to the deposits in the bank account and to state grounds for equitable relief. Doerschuck v. Mellon, 60 App. D. C. 383, 55 F.(2d) 741. More than a thousand persons have intervened in the Doerschuck suit, setting up claims similar to his and praying for like relief. The Z. & F. Corporation is a defendant in the suit and in its answer it has interposed as one of its defenses the bar order by the bankruptcy court already referred to.

With matters in this condition, the Z. & F. Corporation and certain of the creditors who hold its certificates of beneficial interest filed this petition, entitled in the bankruptcy proceeding, and asking that Doerschuck and the interveners be enjoined from prosecuting further the suit in the District of Columbia and from asserting any claim to the fund created to pay the award of the Mixed Claims Commission. The petition is based primarily upon the bar order of this court in 1924. It is alleged, and not denied, that in the bankruptcy proceeding no claim was filed as to the bank account in the Deutsche Bank by Doerschuck or any of the other respondents. It is not claimed, however, that these persons had any notice of this order or of the bankruptcy proceeding in the course of which the order was made. Doerschuck has appeared and answered the petition.

1. The respondents urge that at no time was the bank account in the Berlin bank property in the custody of the bankruptcy court, and that there was no jurisdiction therefore for the exercise of summary jurisdiction over it. This argument cannot be sustained. The bank account did not represent earmarked money in Germany. It was a mere debt owed by the German bank to the bankrupts. Deutsche Bank v. Humphrey, 272 U. S. 517, 47 S. Ct. 166, 71 L. Ed. 383. Zimmermann v. Sutherland, 274 U. S. 253, 47 S. Ct. 625, 71 L. Ed. 1034. The bank never disputed the origin or existence of the debt, but only the amount that should be paid to liquidate it. It may be granted that summary jurisdiction over the debtor was not possessed by the bankruptcy court. It could not have issued a valid order upon the bank to pay, the bank protesting the jurisdiction. But the situation is otherwise between the receiver and adverse parties who might claim ownership or interest in the bank account. The legal title to the chose in action was in the bankrupt firm, as the respondents themselves alleged in their suit in equity. The bank knew only Zimmermann & Forshay as its creditor. The papers evidencing the debt were in the bankrupt's possession, and legal proceedings had been instituted to collect the debt at what the bankrupt firm considered the proper figure. The papers as well as the control of the proceedings passed to the receiver. Under the circumstances the bankrupts' "possession" of this species of intangible property was sufficiently real to give the bankruptcy court summary jurisdiction to decide its ownership as between the bankrupt and adverse claimants. In re Borok (C. C. A.) 50 F.(2d) 75; Street v. Pacific Indemnity Co. (C. C. A.) 61 F.(2d) 106; Chicago Board of Trade v. Johnson, 264 U. S. 1, 44 S. Ct. 232, 68 L. Ed. 533; In re Ransford (C. C. A.) 194 F. 658; Orinoco Iron Co. v. Metzel (C. C. A.) 230 F. 40. The fact that the debtor was outside the jurisdiction makes no difference. See O'Dell v. Boyden (C. C. A.) 150 F. 731, 10 Ann. Cas. 239. The cases relied on by the respondents are not in point, except perhaps in re Interocean Co. (D. C.) 232 F. 408, which is not now regarded as stating the correct rule. See In re Hoey, Tilden & Co. (D. C.) 292 F. 269, 272. If in the present case the receiver had been cognizant of Doerschuck's claim of an equitable interest in the bank account, and had obtained on proper petition an...