Irving Trust Co. v. STATE BANKERS'FINANCIAL CORPORATION

• Citation: 40 F.2d 88
• Parties: IRVING TRUST CO. v. STATE BANKERS' FINANCIAL CORPORATION et al.
• Decision Date: 05 April 1930
• Court: U.S. District Court — Southern District of New York

40 F.2d 88 (1930)

IRVING TRUST CO. v. STATE BANKERS' FINANCIAL CORPORATION et al.

District Court, S. D. New York.

April 5, 1930.

Ernst, Gale & Bernays, of New York City (Murray C. Bernays and Abraham Friedman, both of New York City, of counsel), for plaintiff.

David W. Kahn, of New York City, for defendant State Bankers' Financial Corporation.

Lind, Shlivek, Marks & Brin, of New York City, for defendant Samuel Schuckman.

Dean, King, Smith & Taylor, of New York City (George M. Welch, of New York City, of counsel), for defendant Lawyers' Trust Co.

Max Jelline, of New York City, for defendants Harris Mindlin, Israel Kopeloff, Louis Goldfarb, and Alexander Goldberg.

Jacob Lippman, of New York City, for defendant Samuel Levine.

Josephine M. Steinbugler, of Brooklyn, N. Y. (Joseph S. Robinson, of New York City, of counsel), for defendants Ernest Rapsch and Karl Burg.

THACHER, District Judge (after stating the facts as above).

State Capital was organized in May, 1928, and from that time until September 17, 1929, when it closed its doors, had its offices at 170 Broadway, New York City, where it was engaged in the business of selling the capital stock of State Bankers and in buying and selling unlisted securities, principally bank and insurance stocks, in so-called "over the counter" transactions. The affairs of this corporation were managed by defendant Schuckman, who was active in its organization and in the organization of State Bankers. Associated with him were Philip Cruso and Baruch Zuckerman, who were influential in procuring the capital with which State Bankers was originally organized, and in selling its stock. State Bankers was organized under the laws of Delaware in order to conduct a purely investment business. It has maintained a statutory office in the state of Delaware, but its business was transacted by Schuckman, Zuckerman, and Philip Cruso at 170 Broadway, in the offices of State Capital. These men were all directors of State Bankers. Solomon Cruso, a brother of Philip, was its president, and a member of its executive committee. Schuckman was its vice president and a member of its executive committee. Harry Cruso, a brother of Philip and Solomon, was its treasurer and a member of its executive committee. Zuckerman was its secretary, and a member of its executive committee. Solomon and Harry Cruso paid very little attention to its affairs, and such business as it had was attended to by Zuckerman, Philip Cruso, and Schuckman, in the office at 170 Broadway, New York City. Philip Cruso and Zuckerman, as customers' men, attended at these offices and were actively engaged during the usual business hours of each day in selling capital stock of State Bankers and in soliciting purchases and sales of unlisted securities in behalf of State Capital. They were interested, as stockholders, in State Capital. They assert ignorance of its affairs and deny knowledge of its financial condition at all times. In view of their intimate association with Schuckman and their concern in the business in which they were personally engaged and directly interested I cannot accept their testimony to this effect, and must conclude that they had a general knowledge of the business in which they were engaged, sufficient for them to know in a general way the financial condition of State Capital. That they must have known during the summer of 1929 that State Capital was going heavily short of the market, and that only a severe depreciation in the value of the stocks in which it was dealing could save it from financial ruin, I have no doubt. Their personal participation in the transactions immediately preceding the failure of State Capital, by which they procured payments to be made to themselves and to others, is entirely persuasive of a deliberate intent to save from the wreckage of State Capital moneys which they were not entitled to receive or expend in the manner disclosed by the proofs. It is not necessary to review this shameful record. The ultimate fact of their knowledge is disputed only by themselves, and their own acts demonstrate the falsity of their denials. I am therefore constrained to find that Schuckman, Philip Cruso, and Zuckerman, in making payment of $39,050 to State Bankers, had full knowledge that the bankrupt was insolvent, and that the payment would necessarily operate as a preference. These payments were made to, and received by, Philip Cruso and Zuckerman as the representatives of State Baners.

This brings one to the main reliance of the defense. The knowledge of Schuckman, Philip Cruso, and Zuckerman, it is said, cannot be imputed to State Bankers, because in making the payments in question they were endeavoring to restore that which they had wrongfully taken from State Bankers. In considering this question it must be emphasized that these three persons were the only persons concerned in the transactions between State Bankers and State Capital. Philip Cruso and Zuckerman acted for State Bankers in receiving the payment, and in so acting they were serving no interest adverse to State Capital. Section 60b of the Bankruptcy Act (11 USCA § 96(b) expressly provides that a preferential payment is voidable, provided the person receiving it or "his agent acting therein" shall have reasonable cause to believe that the enforcement of such judgment or transfer would effect a preference. This is plain language, and there is authority for holding that the agents' interest to conceal the preferential character of the transaction is entirely irrelevant. Campbell v. Balcomb (C. C. A.) 183 F. 766; Holbrook v. U. S....