Lynch v. Roberson

• Decision Date: 13 March 1923
• Docket Number: 3764.
• Citation: 287 F. 433
• Parties: LYNCH v. ROBERSON. In re TENNESSEE RIVER COAL CO.
• Court: U.S. Court of Appeals — Sixth Circuit

287 F. 433

LYNCH v. ROBERSON.

In re TENNESSEE RIVER COAL CO.

No. 3764.

United States Court of Appeals, Sixth Circuit.

March 13, 1923

On May 27, 1921, a petition was filed in the bankruptcy court by the trustee of the Tennessee River Coal Company (which had been adjudged bankrupt February 6, 1912); the present trustee having been appointed upon the reopening of the bankrupt estate in 1921 (the estate had been closed and the trustee discharged July 30, 1914), asking that the receiver of the property and assets of the Tennessee River Railroad Company appointed as such February 20, 1912, by an order of a chancery court of the state of Tennessee, in a general creditors' suit pending in the state court, be required to surrender to the trustee in bankruptcy for administration in the bankruptcy court the funds held by the chancery receiver by virtue of that receivership as assets of the Tennessee River Railroad Company; upon the ground that the same were the property of the bankrupt estate. The receiver denied the jurisdiction of the referee under the petition and moved to dismiss the same, for the reason that the receiver was an adverse claimant to the funds described therein, and that his right to the same could be determined only in a plenary suit. The referee denied the trustee's petition, on the ground that the trustee's claims to the property in the possession of the state court receiver could be determined only in a plenary suit, and for the further reason that the trustee's claim, if any, had been barred by the two-year limitation prescribed by section 11d of the Bankruptcy Act (Comp. St. Sec. 9595). The District Judge modified the order of dismissal, by resting the same solely upon lack of jurisdiction to proceed summarily to determine the merits of the controversy involved, and upon the holding that the receiver's claim of adverse possession of the property was real, and not merely colorable-- the order of dismissal being without prejudice to the right of the trustee, if he has any, to thereafter proceed by plenary suit in any court having jurisdiction of the controversy presented. The case is brought here both by appeal and by petition to revise.

The opinion of District Judge (now Mr. Justice) Sanford is as follows:

On February 6, 1912, the Tennessee River Coal Co. was adjudged bankrupt on its voluntary petition. Certain assets were administered, the trustee discharged and the estate closed in 1913.

In March, 1921, upon a petition of creditors alleging that the estate had been closed before being fully administered, it was reopened for the purpose of administering upon other assets, if any, and the cause re-referred to the referee.

Upon such re-reference a new trustee was appointed, who thereafter filed a petition in the case, praying, in effect, a summary order on the receiver in the case of J. B. Wynne et al. v Tennessee River Railroad Co., pending in the Chancery Court of Marion County, Tennessee, for the surrender of a fund held by him as such receiver arising from the proceeds of property sold therein as the property of said Railroad Company, but alleged in the petition, in substance, to have been the property of the bankrupt.

Notice having been served on said receiver requiring him to make defense to the petition, he appeared specially and moved to dismiss the petition on the ground that being an adverse claimant to said fund his right thereto could only be determined in a plenary suit, over which the referee would have no jurisdiction; and without waiving this objection, filed his answer in which he again denied the jurisdiction of the referee, and asserted his claim to this fund as one arising from the sale of property belonging to the Railroad Company, and not to the bankrupt, as well as relying upon laches and the statute of limitations of two years prescribed by section 11d of the Bankruptcy Act as to the bringing of suits by trustees in bankruptcy. An amended petition and answer thereto, again denying jurisdiction, having been filed, the matter was heard by the referee on pleadings and proof, and an order made by him on March 6, 1922, adjudging, among other things, that if the trustee had any right of action against the receiver, it could only be asserted in a plenary suit, which would now be barred by said statute of limitations and thereupon disallowing and dismissing the trustee's petition. This is the order which the trustee now seeks to review.

None of the property in question, which consisted of steel rails, frogs, switches, etc., was scheduled by the bankrupt as its property; none ever came into the actual possession of the bankruptcy court or of any of its officers; and none was administered by the former trustee.

And on February 19, 1912, thirteen days after the adjudication of the Coal Company in bankruptcy, the bill was filed in the Chancery Court in the above mentioned case of Wynne et al. v. Tennessee River Railroad Co. This was a general creditors' bill against the Railroad Company, to which neither the Coal Company nor the trustee in bankruptcy were parties, and sought the administration of the assets of the Railroad Company for the benefit of its creditors. A receiver was appointed in said chancery cause on February 20, 1912, who took possession of said property as part of the property of the Railroad Company, since which time it was continuously in possession of the receiver and held by him as the property of the Railroad Company until sold for the purpose of administering the assets in said chancery cause, for which purpose its proceeds are now held by the receiver, subject to the orders of the Chancery Court.

It is the theory of the trustee that said Railroad Company was and is not now a legally organized corporation but merely a corporate shell, chartered by the Coal Company, for its own benefit, as a subsidiary corporation and agency for the purpose of constructing a railroad to its coal properties, entirely financed by it and having in fact no separate legal corporate existence, and that the property in question was in substance and in fact the property of the Coal Company, bought with its money, and either never transferred to the Railroad Company or held by it as agent for the Coal Company and hence to be administered as part of its assets.

On the other hand, it is the theory of the receiver that, while the Railroad Company may have been chartered at the instance of the Coal Company, it was legally organized and acted as a separate legal entity, and that in such capacity it acquired the property in question, and contracted various debts to creditors for whose benefit its assets are properly to be administered in the chancery cause.

It is well settled that where property claimed by the trustee as part of the bankrupt estate is in the possession of a third person, claiming adversely title thereto or an interest therein, summary proceedings for its recovery will not lie in the bankruptcy court, but such a controversy is presented that resort must be had by the trustee to a plenary suit in a court in which it might have been prosecuted if the proceedings in bankruptcy had not been instituted.

Bankruptcy Act, Sec. 23 (Comp. St. Sec. 9607); I Lovel. Bankc'y (4th Ed.) Sec. 36, p. 122, and cas. cit. note 64; Id. Sec. 37, p. 124, and cas. cit. note 69; 1 F. Stat. Ann. (2d Ed.) 761, and cas. cit. in note on 'Jurisdiction of Adverse Claims'; 2 Rem.Bankc'y (2d Ed.) § 796, p. 1668, and cas. cit. note 2, p. 1669.

If the property is tangible, the determination of the question as to who has possession or control of it determines the forum to which the parties must resort...