Matter of Cafes Internationale, Ltd.
| Citation | 13 BR 155 |
| Decision Date | 30 July 1981 |
| Docket Number | Bankruptcy No. 72 B 580. |
| Parties | In the Matter of CAFES INTERNATIONALE, LTD., Bankrupt. Edgar H. BOOTH, Successor Trustee in Bankruptcy of Cafes Internationale, Ltd., Bankrupt, Plaintiff, v. MANUFACTURERS HANOVER TRUST COMPANY, Swiss Bank Corporation, New York Branch, the Chase Manhattan Bank N.A., and Banco Sul Brasileiro S.A., Defendants. The CHASE MANHATTAN BANK, N.A., Third-Party Plaintiff, v. The CITIZENS & SOUTHERN NATIONAL BANK, Third-Party Defendant. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
Simpson, Thacher & Bartlett, New York City, for Manufacturers Hanover Trust Co.; Henry Landau, New York City, of counsel.
Matthew F. Donohue, New York City, for the Chase Manhattan Bank, N.A.
Alston, Miller & Gaines, Atlanta, Ga., for Citizen's and Southern National Bank.
Booth, Lipton & Lipton, New York City, for Edgar Booth, successor Trustee; Edgar Booth, New York City, of counsel.
White & Case, New York City, for Swiss Bank Corp.; Burton T. Ryan, New York City, of counsel.
This is an adversary proceeding1 commenced by the successor trustee of the estate of this former Chapter XI2 debtor, seeking to have declared and imposed the liabilities of the various defendants, following the unauthorized withdrawal of funds of the estate by the original trustee, who at the time of the filing of the complaint, was said to be residing in Brazil.
The facts underlying the litigation are, briefly, these: On March 23, 1973 Hans J. Auman was appointed trustee of the bankrupt estate. By order dated May 24, 1974 Auman was authorized to transfer $140,000 to a time certificate of deposit3 at Manufacturer's Hanover Trust ("MHT"), a designated depository of this Court. The order provided that "said time certificate of deposit shall remain in the custody of the aforesaid bank for safekeeping, subject to the further order of this court". On June 20, 1977 MHT issued a check4 in the amount of $141,680.97 to the order of "Hans J. Auman, TTEE in Bankruptcy of Cafe sic International sic, Ltd". A few days later Auman negotiated the check with Swiss Bank Corporation ("Swiss") at their New York branch, requesting that the funds be credited to his personal account at Swiss' Zurich branch. Auman endorsed the check "Hans J. Auman, Ttee" and the typewritten notation "TTee in Bankruptcy of Cafe sic International sic, Ltd." appears beneath the signature. Thereafter, Swiss endorsed the check and deposited it in Swiss' account with Chase Manhattan Bank, N.A. (Chase). Chase presented the check for payment and the monies were duly transferred by MHT.
While the transfer was being effected, Swiss reconsidered its original agreement to credit Auman's personal account. Instead, Swiss issued its own check, drawn on Chase, and mailed it to Auman in Frankfurt, West Germany. The payee was the same as on the MHT check. Auman deposited the Swiss check in Banco Sul Brasileiro, S.A. (Banco Brasileiro) in Rio de Janeiro, endorsing it, however, in his individual capacity only. The Brazilian bank presented the check to Chase for payment through the Citizen's and Southern Bank (C & S), and after Chase transferred the monies they were credited to Auman's personal account. Sometime thereafter, Auman was removed as trustee, and the Successor Trustee ("trustee") has now commenced suit against MHT, Swiss, Chase and the Brazilian bank.
II
The trustee has alleged four causes of action: the first cause of action alleges improper and wrongful conduct by all of the defendants constituting a conversion of funds of the bankrupt estate; the second cause of action, directed solely against MHT, as a depository of the money of estates under the Bankruptcy Act, alleges a breach of MHT's duty as such designated depository resulting in a loss to the estate in the amount of $141,680.97 with interest; the third cause of action duplicates the first cause of action except that it is directed at the defendant banks other than MHT: and the fourth cause of action implicating defendants other than MHT, alleges that such defendants, as trustees ex maleficio, have breached their trust and are liable, therefore to the bankrupt estate.
The relief requested by the trustee, in his complaint, is a judgment on the above causes of action against the four defendants in the sum of $141,680.97 with interest from June 30, 1977 together with costs and disbursements.
III
MHT, Swiss and Chase each answered the complaint and cross-claimed against one another. Swiss and Chase also filed cross-claims against Banco Sul Brasileiro, S.A. and Chase further served a third party complaint upon C & S. Both C & S and Banco Brasilerio, filed motions to dismiss in lieu of an answer. On April 1, 1981, this Court granted Banco Sul Brasileiro's motion to dismiss.
Swiss, in its answer, objected to the summary jurisdiction of this Court6 and Chase has cross-moved to dismiss the complaint.
The underlying facts of this proceeding, not being in dispute, the trustee now moves for summary judgment against all of the named defendants. This motion is made pursuant to Bankruptcy Rule 756,7 this Court's procedural mate of Fed.R.Civ.P. 56.
IV
Swiss' Objection To The Summary Jurisdiction Of This Court
The power conferred by the Bankruptcy Act of 1898 upon this Court to adjudge matters or proceedings before it, is commonly known as summary jurisdiction, or the power to act in summary fashion.8 This essentially equitable,9 but circumscribed jurisdiction, is limited to controversies relating to property over which this Court has actual or constructive possession10 as well as to matters presented in the ordinary course of the administration of the estate.11 Finally, summary jurisdiction may be exercised where a party is deemed to have consented12, or waived13 its objection. Swiss, unlike its co-defendants who have waived any objections to summary jurisdiction by not so objecting in their answers,14 has properly preserved its right to claim that this Court does not have summary jurisdiction to resolve the trustee's claims against Swiss. For that reason, Swiss seeks a dismissal of all causes of action pertinent to it.15
As described earlier, the first and third causes of action in the trustee's complaint allege that Swiss, inter alia, assisted in, or permitted, the misappropriation or conversion of estate funds which the trustee is entitled to by way of a turnover order. Swiss argues, in reliance upon the decisions in In re Reading Engineering, Inc.,16 and In re 671 Prospect Avenue Holding Corporation,17 that a suit seeking damages for unlawful conversion of property of the estate, may not be heard by the bankruptcy court in a summary proceeding.18
In the case of In re Reading Engineering Inc., a landlord, ten months subsequent to the filing of a bankruptcy petition, commenced distraint proceedings for nonpayment of rent by the bankrupt, Reading Engineering, culminating in a sale of the bankrupt's machinery left on the premises. The landlord was the successful bidder. It appears that most of the machinery purchased at the sale was kept by the landlord on the premises where it was located prior to the sale. Thereafter, the bankruptcy trustee commenced a summary proceeding in the bankruptcy court. The Court sustained the referee's determination that the trustee, by reason of the wrongful distraint proceedings and sale, was entitled only to recover, by summary fashion, the specific machinery remaining in the landlord's possession. The trustee, however, could recover the property removed from the landlord's possession, i.e. converted from the bankrupt's estate, only "in a proper proceeding".
Years later, in In re 671 Avenue Holding Corporation, our Court of Appeals interpreted that quoted phrase, "in a proper proceeding", to mean a plenary proceeding. In the later case, the defendant, East River Savings Bank, upon a foreclosure sale, transferred certain chattels of the bankrupt to a third party following a final determination by the Court of Appeals that the chattels were indeed secured by a mortgage. On reargument, however, the Court, in light of intervening state law which had been established with respect to the very mortgage at bar, reversed its prior ruling. Thereafter the trustee petitioned the bankruptcy court for an order permitting him to recover the value of the transferred property. The transferee was not made a party to this suit. In affirming the dismissal of the trustee's petition, the Court reasoned as follows:
19
As stated earlier, the trustee here has framed his request for relief in terms of a turnover order. His allegations, in the first and third causes of action, however, clearly can be characterized only as seeking damages for conversion within the holding in 671 Prospect Avenue. Accordingly, as to Swiss, these causes of action must be dismissed for lack of jurisdiction.
The relief requested in the trustee's fourth cause of action, as it relates to Swiss, although similarly cast in terms of a turnover order, requires a different analysis and warrants a brief discussion of the nature of the turnover proceeding.
(1)
A turnover order is a judicially developed20 procedure grounded in the Court's power to "make such orders . . . in...
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