Kroell v. New York Ambassador

• Decision Date: 18 December 1939
• Docket Number: No. 61.,61.
• Citation: 108 F.2d 294
• Parties: KROELL et al. v. NEW YORK AMBASSADOR, Inc.
• Court: U.S. Court of Appeals — Second Circuit

108 F.2d 294 (1939)

KROELL et al. v.NEW YORK AMBASSADOR, Inc.

No. 61.

Circuit Court of Appeals, Second Circuit.

December 18, 1939.

Benjamin C. Ribman, of New York City(McInnes & Gamble and Hamilton McInnes, all of New York City, on the brief), for appellants.

Godfrey Goldmark, of New York City(Rosenberg, Goldmark & Colin and Herman Jervis, all of New York City, on the brief), for appellee.

Before SWAN, CHASE, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

A preliminary question arises herein as to the jurisdiction of the court to consider on the merits a proposed amendment to an involuntary petition for reorganization of a corporation after a motion for dismissal of the petition had been granted.Appellee claims that under In re Glory Bottling Co. ofNew York, 2 Cir., 283 F. 110, 112, a bankruptcy court has no jurisdiction to consider an amendment to an involuntary petition after it has been dismissed.

Here the original petition against the appellee, filed January 28, 1939, was dismissed on February 2, 1939, because, as the court said, it did not comply with the requirement of 11 U.S.C.A. § 531(that the petition must state one of five grounds therein specified).Then a new petition was filed asking, among other things, that this order "be nullified" and an amendment be permitted, which, under date of March 3, was denied.The court in a short memorandum indicated its willingness to accept a proper amendment, for it referred to the fact that at the previous hearing counsel stated he could not make his petition any stronger by amendment, and it also pointed out that good practice would require the submission of the proposed amended petition with the application to amend.Those petitions are not in the record, and our information as to them is limited to the court's statements and other references made to them in the affidavits considered below.Apparently pursuant to this suggestion of the court, appellants filed the present petition, dated March 13, 1939, to serve an attached amended petition for reorganization.The court heard this petition and overruled appellee's objection of lack of jurisdiction, but refused leave to file the amended petition on the ground that it still failed to show one of the statutory requirements for the proceedings.

In re Glory Bottling Co. of New York, supra, does not go so far as to deny all jurisdiction to a bankruptcy court to proceed under circumstances such as are here disclosed.Under the circumstances there presented — where permission to amend under certain conditions had been granted and the petition was "then deliberately abandoned by failure to conform with the conditions upon which amendment was permitted" — the court held there was no "power" in the district court to order the default opened and a "so-called"amended petition filed in place of "the abandoned insufficient petition."That power was not used in the sense of fundamental jurisdiction of the court is, however, indicated not merely by these particular circumstances of failure to conform to the granted permission, but also by the statements in the opinion just prior to this holding: "There may also be cases where, through some accident or mistake, a petition is dismissed.For instance, there may be an inadvertent default when a cause is called for trial upon the issues raised by a petition in involuntary bankruptcy and the answer thereto.In such circumstances the court, of course, would have the ordinary powers possessed by the court in other causes, and might open the default in the exercise of a sound discretion."

The case therefore actually upholds the power of the bankruptcy court, sitting as a court of equity, to reopen defaults in its discretion.This appears to be the settled rule.Wayne United Gas Co. v. Owens Co., 300 U.S. 131, 57 S.Ct. 382, 81 L.Ed. 557, held that a court of bankruptcy had power in the exercise of sound discretion to reopen an order dismissing a petition for reorganization even after the time for appeal had expired.Sabin v. Blake-McFall Co. et al., 9 Cir., 223 F. 501, held an amendment allowable after dismissal of the petition; and White v. Bradley Timber Co., D.C.S.D.Ala., 116 F. 768, supported the power, though it denied the amendment offered.The power was also supported in Re Bieler et al., 2 Cir., 295 F. 78, where it was held that an involuntary petition insufficient because acts of bankruptcy were alleged only generally in the words of the statute could be amended.See alsoPugh & Beavers Grocery Co. v. International Shoe Co., 4 Cir., 288 F. 556;In re Jemison Mercantile Co., 5 Cir., 112 F. 966.It follows naturally from both the court's general equity powers (cf.Pepper v. Litton, 60 S.Ct. 238, 84 L.Ed. ___, December 4, 1939) and its well settled powers — under Bankruptcy Order XI, 11 U.S.C.A.followingsection 53, or EquityRule 19, 28 U. S.C.A.followingsection 723, or again from equity generally — to permit amendments of involuntary proceedings, even to the supplying of jurisdictional averments.In re Haskell, 7 Cir., 73 F.2d 879;In re Claudon, 7 Cir., 73 F.2d 876(amendment allowed in 1934 of involuntary petition filed in 1927);Fierman v. Frankfort Broom Co., 3 Cir., 69 F.2d 827;In re Yellow Motor Co., 8 Cir., 34 F.2d 118, certiorari denied280 U.S. 590, 50 S.Ct. 38, 74 L.Ed. 639;In re Plymouth Cordage Co., 8 Cir., 135 F. 1000;International Bank v. Sherman, 101 U.S. 403, 25 L. Ed. 866;Armstrong v. Fernandez, 208 U. S. 324, 28 S.Ct. 419, 52 L.Ed. 514.

It would be anomalous, indeed, if the mere omission of leave to amend in the order holding the original petition insufficient had the effect of depriving the court of jurisdiction which it otherwise had to allow an amendment.The decisions to the contrary are reasonable; they are now more in point than ever in the light of the present Bankruptcy Order XI and the new Federal Rules of Civil Procedure,28 U.S. C.A.followingsection 723c, which by Bankruptcy Order XXXVII apply in so far as they"are not inconsistent" with the Act or the bankruptcy orders.Federal Rule 60(b) states a definite procedure, under which the court, on motion made within six months, may relieve a party from a judgment, order, or proceeding taken against him through his mistake, inadvertence, surprise, or excusable neglect.This rule may indicate the proper grounds upon which a court may act in reopening a decree.Whether it is available for a full six months in the summary procedure of bankruptcy, we need not now determine.In the case at barthe court disclosed its willingness to reopen the decree for a proper amended petition.We may assume that this was a justified exercise of discretion and, since we hold that the court had jurisdiction under the doctrine of Wayne United Gas Co. v. Owens Co., supra, we may proceed to a consideration of the appeal on the merits.

The present respondent was formed pursuant to a plan of reorganization of the Ambassador Hotel Corporation approved by the District Court in 1936.Proceedings to that end had been pending since an attempted foreclosure in 1931 and involved much litigation, in which the appellants participated as objecting bondholders.This is a further attempt by them to secure reorganization of this hotel property along lines they desire.The extensive affidavits filed below on this petition contain violent and acrimonious charges and countercharges of bad faith which seem to be quite irrelevant to any issues before us.The issue actually presented is narrow and is merely the question whether the petitioners now show facts sufficient under 11 U.S.C.A. § 531 to force a corporation into reorganization under Chapter X of the present Bankruptcy Act.

Under this statute, petitioners, in addition to a showing that the corporation is insolvent or unable to pay its debts as they mature, must also show at least one of five grounds...