Melvin v. Klein

• Decision Date: 20 December 1965
• Citation: 49 Misc.2d 24,266 N.Y.S.2d 533
• Parties: Myron S. MELVIN, Plaintiff, v. Eugene H. KLEIN, Individually and as Managing Agent of Randolph House Motor Hotel Corp., Debtor, in proceedings for an Arrangement under Chapter XI of the Bankruptcy Act and as Receiver of Randolph House Motor Hotel Corp., Debtor in proceedings for Arrangement under Chapter XI of the Bankruptcy Act and as Trustee of the Bankrupt Estate of Randolph House Motor Hotel Corp., American Employers' Insurance Company, Defendants.
• Court: New York Supreme Court

Page 533

266 N.Y.S.2d 533

49 Misc.2d 24

Myron S. MELVIN, Plaintiff, v. Eugene H. KLEIN, Individually and as Managing Agent of Randolph House Motor Hotel Corp., Debtor, in proceedings for an Arrangement under Chapter XI of the Bankruptcy Act and as Receiver of Randolph House Motor Hotel Corp., Debtor in proceedings for Arrangement under Chapter XI of the Bankruptcy Act and as Trustee of the Bankrupt Estate of Randolph House Motor Hotel Corp., American Employers' Insurance Company, Defendants.

Supreme Court, Special Term, Onondaga County.

Dec. 20, 1965.

Melvin & Melvin, Syracuse, for plaintiff, Herman L. Harding, Syracuse, of counsel.

Smith, Sovik, Terry, Kendrick, McAuliffe & Schwarzer, Syracuse, for defendant Klein as Receiver, Laurence Sovik, Syracuse, of counsel.

Michael L. Supnik, Syracuse, for defendant Klein individually and American Employers' Ins. Co.

RICHARD D. SIMONS, Justice.

These are two motions for an Order dismissing the plaintiff's complaint on the grounds that the court has not jurisdiction of the subject matter of the cause of action. CPLR § 3211(a)(2). One motion is made by Eugene H. Klein individually and Managing Agent, and by the defendant American Employers' Insurance Company surety of the defendant Klein, and a second motion is made by Eugene H. Klein as Receiver and Trustee of the Randolph House Motor Hotel Corporation.

The amended complaint alleges that on October 3, 1962 the Randolph House Motor Hotel Corporation delivered its demand promissory note in the amount of $35,000 to the plaintiff. There remains unpaid on that note the sum of $31,352.43 principal. On the same date, as security for the note, the corporation executed and delivered to the plaintiff an assignment of accounts receivable of a total value of $34,807.90 and Donald S. Potter, president of the corporation, individually, assigned all his right, title and interest to the said accounts receivable to the plaintiff.

On November 5, 1962, the defendant Klein was appointed managing agent of the corporation in proceedings for an arrangement under Chapter XI of the Bankruptcy Act by the United States Referee in Bankruptcy for the Northern District of New York. On January 10, 1963, the defendant Klein was appointed receiver of the corporation by the same Court, and on February 11, 1963, the defendant Klein was appointed trustee of the corporation by the same court. The defendant insurance company supplied bonds to the defendant Klein in each of his capacities in an amount and form approved by the Bankruptcy Court. The corporation was adjudicated bankrupt on February 11, 1963.

By letter dated November 2, 1962, Attorneys Melvin & Melvin, acting for the plaintiff, advised the attorney for the Corporation that pursuant to the request of the Referee in Bankruptcy 'we do hereby waive the right to receive payments pursuant to the assignment of said accounts receivable until such time as an adjudication in bankruptcy is had or in the alternative, that an Order be made dismissing the petition of Randolph House Motor Hotel Corporation, at which times the then existing uncollected accounts receivable shall be assigned and turned over to Myron S. Melvin as assignee. This deferment and postponement shall in no way be considered a waiver by our client of his position as a secured creditor.'

On November 5, 1962, the Referee in Bankruptcy executed an order for an arrangement under Chapter XI. The order referred to the Melvin & Melvin letter and a copy was attached to the Order.

After adjudication of bankruptcy, the plaintiff demanded the accounts receivable and the proceeds thereof from the defendant Klein. The defendant Klein has refused to comply with that demand and it is alleged upon information and belief that in connection with the carrying on of the business of the debtor, the defendant Klein has taken possession and assumed control and administered the accounts receivable and proceeds thereof to the plaintiff's damage.

The three causes of action charge the defendant Klein individually and in his representative capacities with conversion and misappropriation of the accounts receivable and the proceeds, and allege liability of the American Employers' Insurance Company as surety by reason of the defendant Klein's wrongful and unlawful acts.

An action against a trustee, receiver or manager appointed as an officer of Bankruptcy Court exposes the assets of the bankrupt's estate of liability. Since those assets actually or constructively held by the court's appointee are within the exclusive jurisdiction of the Bankruptcy Court, it has long been recognized that such suits are to be maintained solely in the Court, or by its leave, without interference by state tribunals. Ex parte Baldwin, 291 U.S. 610, 54 S.Ct. 551, 78 L.Ed. 1020 (1934); Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672; Northeastern R.E. Sec. Corp. v. Goldstein, 276 N.Y. 64, 11 N.E.2d 354 (1937).

A limited execption to this principle is contained in the statutory enactment found in 28 U.S.C.A. § 959(a): 'trustees, receivers or managers of any property * * * may be sued, without leave of the court appointing them, with respect to any of their acts...