Matter of Maidman

• Decision Date: 01 February 1980
• Docket Number: Bankruptcy No. 79 B 043.
• Citation: 2 BR 569
• Parties: In the Matter of Richard H.M. MAIDMAN, not Individually but as Trustee under that certain land trust agreement dated December 19, 1975 known as "Trust Number 2", Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

2 B.R. 569 (1980)

In the Matter of Richard H.M. MAIDMAN, not Individually but as Trustee under that certain land trust agreement dated December 19, 1975 known as "Trust Number 2", Debtor.

Bankruptcy No. 79 B 043.

United States Bankruptcy Court, S.D. New York.

February 1, 1980.

COPYRIGHT MATERIAL OMITTED

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Wachtell, Lipton, Rosen & Katz, New York City, for Compass Investment Group; Lawrence U. Cherkis, Theodore Gewertz, Richard D. Feintuch, New York City, of counsel.

Gelberg & Kronovet, New York City, for Jomar Hotel Corp.; Marc S. Kirschner, New York City, of counsel.

Kronish, Lieb, Shainswit, Weiner & Hellman, New York City, for Richard H.M. Maidman, not individually but as Trustee; Richard Lieb, Laurence J. Kaiser, New York City, of counsel.

OPINION

JOEL LEWITTES, Bankruptcy Judge.

This decision is occasioned by several motions by Compass Investment Group ("Compass"),¹ a secured creditor of a Chapter XII "debtor", Richard H.M. Maidman, as Trustee under a land trust agreement dated December 19, 1975 ("petitioner")² which challenge, alternatively, this Court's subject matter jurisdiction as well as the venue of this Chapter XII case.³

I

Subject Matter Jurisdiction

(A)

Both Compass and Jomar⁴ predicate their dismissal motions on two grounds: (1) that Richard H.M. Maidman, as Trustee, is not a "debtor", and as such is not a proper petitioner under Chapter XII as defined by the Bankruptcy Act⁵; and (2) that there is no realistic prospect for the rehabilitation of the petitioner or for the submission by it of a viable or feasible plan of arrangement. We shall discuss these contentions seriatim.

(B) Is The Petitioner A Proper Debtor?

(1)

Bankruptcy Act § 406(6) states that

"`debtor\' shall mean a person, other than a corporation as defined in this Act Bankruptcy Act § 1(8), 11 U.S.C. § 1(8), who could become a bankrupt under section 4 of this Act 11 U.S.C. § 22, who files a petition under this chapter XII and who is the legal or equitable owner of real property or a chattel real which is security for any debt . . .."

This statutory provision plainly contains three essential requirements that a petitioner must necessarily meet before being accorded the status of a "debtor" under Chapter XII. Such petitioner must be one who: (1) is not a corporation; (2) could become a bankrupt under Bankruptcy Act § 4; and (3) is a legal or equitable owner of real property or a chattel real which is security for any debt.⁶

Compass, quite properly, does not dispute that the petitioner: (a) is not a corporation⁷ or (b) except as noted infra in subdivision (3) of this portion of the opinion, is technically the legal or equitable owner of real property.⁸ Rather, the controversy in the main, focuses upon the disarmingly difficult question of whether the petitioner here could become a bankrupt under Section 4 of the Bankruptcy Act and therefore a Chapter XII debtor.

Bankruptcy Act §§ 4a and 4b define, respectively, who may become a voluntary and involuntary bankrupt. Since the class of those eligible for voluntary relief is broader than that enumerated for eligible bankrupts in involuntary proceedings,⁹ the proper focus of our inquiry here necessarily should be the requisite eligibility for voluntary relief under Bankruptcy Act § 4a.¹⁰

Bankruptcy Act § 4a extends voluntary relief in bankruptcy to

"any person, except a municipal, railroad, insurance or banking corporation or a building and loan association . .."

The definition, under the Act, of a "person"

"shall include corporations, except where otherwise specified, and officers, partnerships and women . . .."¹¹

Although the original point of departure in the construction of a statute "is the language itself",¹² where, as here, the words of the statute do not advance the inquiry, we must, necessarily, resort to generally accepted principles of statutory construction and seek enlightenment within the "context" of the enactment.¹³ This we shall now proceed to do, in reverse order.

The two dominant themes of the Bankruptcy Act are: (1) to provide the honest debtor with an opportunity to discharge himself of oppressive debt, i.e. "to start afresh"¹⁴; and (2) to equally distribute the bankrupt's assets among his creditors and thereby avoid preferential, as well as fraudulent transfers.¹⁵ Having said this, we are, of course, aware that these avowed goals "cannot be extended to achieve a result neither commanded by the statute nor consistent with its purpose. . . ."¹⁶

Accordingly where, for example, a contract may be disaffirmed by a petitioner on account of infancy¹⁷ or by reason of its lack of power to incur an indebtedness,¹⁸ voluntary resort to the Bankruptcy Court for relief (i.e. a discharge) is unnecessary, futile and properly denied.

Additionally, Bankruptcy Act § 4a, relating to the qualification for voluntary bankrupts, must be read to reflect "a division of power between the federal government and the states."¹⁹ This interpretative reading not only explains the statutorily exempted corporations, which are particular subjects of state or federal regulation,²⁰ but accounts for as well, the apparent disqualification, by decisional law, of bankruptcy relief to insolvent petitioners whose liquidation is otherwise regulated exclusively by state statute.²¹

None of these considerations, necessitating a denial of the relief provisions of the Bankruptcy Act to voluntary bankrupts, apply to the petitioner here.²² The Trustee, on behalf of the land trust, is specifically empowered, by the terms of the trust agreement, to contract and thereby incur obligations which may be satisfied from trust property.²³ Moreover, apart from the Bankruptcy Act, there is no applicable state statute which provides either a parallel or exclusive mode for an orderly distribution of trust assets among creditors of an insolvent trust.

It follows, necessarily, from this analysis of the purposes of the Bankruptcy Act, that in the absence of either a specific prohibition by the terms of the Act or a competing forum which is uniquely empowered to distribute the assets of the estate, entrance to this Court, for relief, may not be barred to a petitioner who can, as here, legally benefit from the Act's provisions.²⁴ Thus, and quite consonant with this approach, the courts have indeed extended relief in the bankruptcy court to diverse and non-descript entities for which no specific enumerated provision therefor has been provided in the Act.²⁵ We are convinced that the petitioner here, similarly, is entitled to seek relief in this Court.

This conclusion is buttressed by resort to well-accepted principles of statutory construction.

In contrast to several other definitional sections set forth in the Bankruptcy Act,²⁶ Section 1(23) thereof, defining "person", employs the term "shall include" rather than the phrase "shall mean". It is clear that the first quoted clause is one of enlargement and extension unlike the second which is limited and restrictive.²⁷ Accordingly, when the verb "include" is utilized in a definitional section, it is generally improper, as does Compass here, to conclude that entities not specifically enumerated in the definition of "person" are to be excluded.²⁸

Moreover, we must note that the Bankruptcy Act is an enactment remedial in nature and should therefore be accorded a liberal interpretation.²⁹ Thus, consistent with the applicable principles of statutory construction, and upon my "finding no Congressional purpose to command otherwise",³⁰ this non-corporate petitioner is a "person" which could become a bankrupt under section 4 of the Act and is therefore a proper debtor to file this Chapter XII petition.³¹

We do not find Compass' citations to the contrary persuasive.

(2)

Compass, in propounding its view that the petitioner cannot be a Chapter XII debtor, relies upon two reported decisions which have directly been addressed to that question.³² Although these two cases squarely held that a land trust, virtually identical to the one at bar, was ineligible for Chapter XII relief, both decisions relied upon, in our judgment, the faulty analysis of the court in Associated Cemetery Management Inc. v. Barnes.³³

Associated Cemetery did not, as here, involve either a Chapter XII case or a land trust. Rather, the Court was faced with the question whether a profit sharing trust, which had filed a voluntary petition in bankruptcy was a "person" as defined in the Bankruptcy Act³⁴ where such trust apparently argued that it could qualify under that definition only on the ground that it was a corporation³⁵ and where the Court found that such trust did not evidence ownership by transferable certificates of interest. The Court, unsurprisingly, focused its attention solely upon the Act's definition of a "corporation"³⁶ and, in particular, to the last clause thereof, which subsumed under that definition, business or Massachusetts trusts. The Court concluded, by reference, to the Act's definition of "corporation", that the private trust, under the circumstances there present, was not a "person" eligible for relief since

"Congress, through the use of this specific language Bankruptcy Act § 1(8), has singled out the Massachusetts trust as qualifying for bankruptcy proceedings, thereby indicating that trusts generally are not within the purview of the Bankruptcy Act. Absence of the required transferable certificates of interest is fatal to appellants\' contention in this regard."³⁷

This broad and sweeping statement by the Court, in the face of the narrow issue before it, the legislative history of the 1926 amendments to Bankruptcy Act § 1(8), and traditional principles of statutory construction, is unjustified.

As we noted earlier, the petitioning trust in Associated Cemetery neither maintained, nor did the Court there explore, the trust's status as a "person" who could become a bankrupt other than on the basis of that trust's sole allegation that it was a "c...