Matter of Shulman Transport Enterprises, Inc.

Decision Date30 June 1982
Docket NumberBankruptcy No. 78-B-1402,78-B-1403.
Citation21 BR 548
PartiesIn the Matter of SHULMAN TRANSPORT ENTERPRISES, INC. Bankrupt. In the Matter of SHULMAN AIR FREIGHT, INC., Bankrupt. PAN AMERICAN WORLD AIRWAYS, INC., on its own behalf and on behalf of all international common carriers by air similarly situated, Plaintiff, v. SHULMAN TRANSPORT ENTERPRISES, INC., Shulman Air Freight, Inc., and Continental Bank, Defendants.
CourtU.S. Bankruptcy Court — Southern District of New York

Stroock & Stroock & Lavan, formerly known as Krause, Hirsch & Gross, New York City, for trustee of Shulman Air Freight, Inc.; Arthur N. Ohringer and John Scheffel, New York City, of counsel.

Jacob L. Oliner, New York City, for Pan American World Airways, Inc.

Blank, Rome, Comisky & McCauley, Philadelphia, Pa., for Continental Bank; Alan C. Gershenson and Morton Newman, Philadelphia, Pa., of counsel.


ROY BABITT, Bankruptcy Judge:

On August 2, 1978 Shulman Transport Enterprises, Inc., and Shulman Air Freight, Inc., (collectively Shulman or debtors) came to this court for the protection afforded by Chapter XI of the now repealed 1898 Bankruptcy Act, §§ 301 et seq., 11 U.S.C. §§ 701 et seq. (1976 ed.).1 This Chapter XI sojourn proved to be short-lived and on November 17, 1978 it was terminated by an order of adjudication pursuant to Section 376, 11 U.S.C. § 776, and its procedural mate in the Bankruptcy Rules, Rule 11-42, 415 U.S. 1031, 94 S.Ct. 3253, 39 L.Ed.2d xlix.

Continental Bank had financed Shulman's pre-petition operations and held a security interest in all of its assets. On August 2 and again on August 16, 1978, orders were entered authorizing Shulman to continue to borrow from Continental Bank, and providing for the giving of a security interest in favor of the bank in Shulman's assets, including its international trade receivables (receivables). Appropriate filings were made pursuant to the provisions of the Uniform Commercial Code.

The receivables were generated by virtue of Shulman's operations as a freight forwarder and consist of fees due to Shulman for the arrangement of transporting goods. Shulman was authorized to operate as an international freight forwarder by virtue of a February 23, 1971 Cargo Agency agreement (IATA Agreement) with the International Air Transport Association (IATA). Pan American World Airways, Inc. (Pan Am) is a carrier member of IATA.

On August 23, 1978, Pan Am commenced an adversary proceeding by filing a complaint, Rule 703, 411 U.S. 1069, 93 S.Ct. 3147, 37 L.Ed.2d lxvi, on behalf of itself and all other international carriers (plaintiffs), seeking a declaratory judgment that the debtor's receivables, attributable to air freight services performed by plaintiffs, are the property of plaintiffs, held in trust by Shulman, and are not included in the security interest granted to Continental Bank. In support for this claim, plaintiffs point to the IATA Agreement under which Shulman was appointed cargo agent for all carrier members of IATA.

The IATA Agreement provides, in pertinent part, that:

"All monies collected by IATA Cargo Agent for transportation sold hereunder, are the property of the carrier ...
Cargo Agent shall remit to the Carrier such monies at such times, under such conditions and in such currencies as the Carrier may designate ... and ... shall be responsible for the payment of any monies due the Carrier ... whether or not such monies have been collected ...". (emphasis added)

Ancillary to the filing of the complaint, Pan Am obtained an order directing Shulman to place the proceeds of the receivables in escrow. Pan Am then moved, pursuant to Rule 23(c)(1) of the Federal Rules of Civil Procedure (F.R.Civ.P.), applicable in adversary proceedings by Rule 723 of the Rules of Bankruptcy Procedure, 411 U.S. 1078, 93 S.Ct. 3154, 37 L.Ed.2d lxx, for an order certifying this adversary proceeding as a class action.

Both Continental Bank and Shulman duly answered. They denied that the receivables are Pan Am's property, and raised various affirmative defenses. Continental Bank moved to dismiss the complaint on jurisdictional grounds, Rule 712, 411 U.S. 1074, 93 S.Ct. 3151, 37 L.Ed.2d lxviii, and both Continental Bank and Shulman opposed Pan Am's motion for class action status. Subsequently, Pan Am moved for summary judgment, pursuant to Rule 56 of the Federal Rules of Civil Procedure, applicable by Rule 756, 411 U.S. 1084, 93 S.Ct. 3159, 37 L.Ed.2d lxxii, alleging that the answers filed by Shulman and Continental did not raise triable issues of fact.

Thus, three separate issues emerge from these proceedings: the appropriateness of class action certification; jurisdiction over Continental Bank; and finally, whether under the terms of the IATA Agreement the charges that were included in Shulman's billings for freight services performed by the plaintiff are held in trust for plaintiff. As the material facts are not in dispute, there is no need for the curtain to ascend on a trial. Heyman v. Commerce & Industry Insurance Co., 524 F.2d 1317, 1319 (2d Cir. 1975).


It is clear that the burden is on Pan Am to establish that this action satisfies each requirement of Rule 23, F.R.Civ.P. East Texas Motor Freight System, Inc. v. Rodriguez, 431 U.S. 395, 97 S.Ct. 1891, 52 L.Ed.2d 453 (1977). Rule 23 gives the court the discretion to determine whether the class satisfies the prerequisites outlined in the Rule, a determination resting on the particular facts of the case. Under Rule 23(a)(1), Pan Am must show that "the class is so numerous that joinder of the parties would be impracticable". As stated in 3B Moore's Federal Practice ¶ 23.051 (2d ed.):

"The raison d\'etre of the class suit doctrine is necessity which in turn depends upon the question of number".

As Pan Am sees it, the Rule is met because there are twelve to forty potential members of the envisioned class.

While there is no magic number that constitutes a class so numerous as to make joinder impracticable, this court is convinced that the number here is too small. There is no evidence that under these facts joinder is impracticable. See, Matthies v. Seymour Mfg. Co., 270 F.2d 365 (2d Cir. 1959), cert. denied, 361 U.S. 962, 80 S.Ct. 591, 4 L.Ed.2d 554 (1960), holding twenty class members did not meet the numerosity requirement.

Furthermore, although the Bankruptcy Rules plainly incorporate Rule 23, a bankruptcy court must consider the fact that in most instances class action principles are antithetical to those of bankruptcy. See, 3B Moore's Federal Practice ¶ 23.022-5 (2d ed.).

As noted in In re Society of the Divine Savior, 15 Fed.R.Serv.2d (Callaghan) 294 (E.D.Wisc.1971), where a creditor in a bankruptcy proceeding sought to impress a trust on certain assets of the debtor, certification would circumvent the stringent requirement that every creditor file his proof of claim in order to participate, Section 57, 11 U.S.C. § 93, by allowing all class members to participate and share in distribution without fulfilling the statutory requirements of the Bankruptcy Act. Id. at 298.

As Pan Am has not shown that this court should circumvent this general policy and has not satisfied the criteria of F.R.Civ.P. Rule 23, class action certification is denied.


The defendant, Continental Bank, attacks the jurisdiction of this court, claiming it does not have "plenary" jurisdiction and that it is not the proper forum for the adjudication of plaintiff's claim. It is defendant's position that plaintiff's action is a patent attempt to involve the bankruptcy court in the resolution of conflicting claims between strangers to this bankruptcy proceeding. See, First State Bank & Trust Company of Guthrie, Oklahoma v. Sand Springs State Bank of Sand Springs, Oklahoma, 528 F.2d 350 (10th Cir. 1976).

However, the Guthrie Bank case, supra, has no application to the facts at bar. In that case, two banks sought a determination of their respective rights to certain certificates of deposit which had been issued by the bank and assigned by the debtor to another bank prior to the debtor's Chapter X petition. The trustee conceded that the estate had no interest in these certificates of deposit, and that the administration of the estate would be in no way affected by the bank's conflicting claims. Under these circumstances, the court properly deflected jurisdiction to a more appropriate forum.

However, Continental Bank is no stranger to this erstwhile debtor in possession for it submitted to this court's jurisdiction when it financed the debtor's operations pursuant to an order of this court, and received a security interest on the assets to be received by the debtor during the administration of the estate.

This court unquestionably has jurisdiction over this action and over the bank. See, In re Fabric Tree Inc.; Mangel Stores Corp. v. The Official Creditors' Committee of the Fabric Tree, Inc., 426 F.Supp. 872 (S.D.N....

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