Prudential Ins. Co. of America v. Land Estates

• Decision Date: 18 March 1940
• Docket Number: No. 183.,183.
• Citation: 110 F.2d 617
• Parties: PRUDENTIAL INS. CO. OF AMERICA v. LAND ESTATES, Inc. SAME v. PIETERS et al.
• Court: U.S. Court of Appeals — Second Circuit

110 F.2d 617 (1940)

PRUDENTIAL INS. CO. OF AMERICA v. LAND ESTATES, Inc. SAME v. PIETERS et al.

No. 183.

Circuit Court of Appeals, Second Circuit.

March 18, 1940.

Clark & Reynolds, of New York City (Edward F. Clark, John A. Shorten, and Albert B. Gins, of New York City, of

counsel), for appellants Prudential Ins. Co. of America and Frank X. Pieters.

Greenbaum, Wolff & Ernst, of New York City (Lawrence S. Greenbaum, Phillip F. Seigenfeld, Benjamin Kaplan, and Louis Kerr, all of New York City, of counsel), for appellees Milton M. Goldman, as receiver of Liberdar Holding Corp. and Land Estates, Inc.

William A. Shea, of New York City (Samuel Boksenbom and John B. Warner, both of New York City, of counsel), for appellee Superintendent of Insurance, as liquidator of New York Title & Mortgage Co.

Kramer & Kleinfeld, of New York City (Barnet Kaprow and David L. Weissman, both of New York City, of counsel), for Trustees of Series B-K.

Wagner, Quillinan & Rikfind, of New York City (Edward A. Tennant, Jr., of New York City, of counsel), for Trustees of Series F-1, and Series C.

Thomas Keogh, of New York City (Joseph L. Maged, of New York City, of counsel), for Trustees of Series Q.

Sherman S. Rogers, of New York City (Abraham J. Halprin, of New York City, of counsel), for Trustees of Series C-2.

Davidson & Mann, of New York City (Abraham J. Halprin, of New York City, of counsel), for Trustees of Series Q-1 and Series NS-1.

Abraham J. Halprin, of New York City, for Trustee of Series C-3.

Hetkin, Rubin & Hetkin, of New York City (Alfred H. Hetkin, of New York City, of counsel), for Trustees of Series B-1.

Meyer Boskey, of New York City, for Trustees of Series CW-1.

Charles L. Meckenberg, of New York City (Milton M. Meyer, of New York City, of counsel), for Trustee of Series D.

Albert W. Fribourg, of New York City (Louis M. Fribourg, of New York City, of counsel), for Trustee of Series N-76.

Olin Potter Geer, of New York City, for Trustee of Series A-2.

Davis, Polk, Wardwell, Gardiner & Reed, of New York City (James S. McNally, of New York City, of counsel), for Trustees of Series JL-1.

Jerome L. Greene, of New York City, for Trustee of Series S-1.

Cadwalader, Wickersham & Taft, of New York City (Charles N. Lowrie, Jr., of New York City, of counsel), for Trustee of Series C-1.

Sullivan, Donovan & Heenehan, of New York City (Lindley J. Murray, of New York City, of counsel), for Trustees of Series FW-1.

Before L. HAND, CHASE, and CLARK, Circuit Judges.

CHASE, Circuit Judge.

This appeal requires a decision as to whether or not secured creditors in an equity receivership in the District Court for the Southern District of New York may prove the face amount of their claims and be limited as to dividends to an amount not to exceed that less whatever may be realized upon their security in accordance with the so-called equity rule; or may prove only as in bankruptcy for the difference between the face of their claims and the value of the security held. The equity rule was applied below and unsecured creditors have appealed. Two cases are before us but as the issues in each are the same no distinction will be made between them except in the following statement of the facts.

The Prudential Insurance Company of America, a New Jersey corporation, filed a creditor's bill in the District Court against Land Estates, Incorporated, a New York corporation, and another like suit against Liberdar, also a New York corporation, on August 18, 1933. Jurisdiction was based on diversity of citizenship. A receiver was appointed in each action and orders made governing the filing of claims. Both the defendants were wholly owned subsidiaries of the New York Title and Mortgage Company which had been in the guaranteed mortgage business; had fallen into financial difficulties; and on July 15, 1935 proceedings for its liquidation under the New York statute known as the Schackno Act, Unconsol.Laws, § 1796 et seq., were commenced. Both the defendants in the receivership suits were business corporations who had executed mortgages on real estate to secure their bonds in which many investors had secured an undivided interest through the purchase of certificates of participation. Payment of the bonds and mortgages were guaranteed by the Title Company but the defendant corporations themselves were not engaged in the insurance business.

The appellees are trustees of designated issues of certificates of participation in such bonds and mortgages who filed claims in the receivership for the full amount due thereon. The special master recommended the allowance of such claims and, no exceptions having been filed, the report was confirmed and the claims allowed as of course on December 5, 1938 to the amount of over two million dollars in the Land Estates suit and of over three million dollars in that against the Liberdar Holding Corporation. On February 20, 1939, the plaintiff, who was an unsecured creditor of each defendant with its claim allowed against each, but had had no notice of the allowance of the claims of the mortgagees until about a month previously, moved to vacate the order. Another unsecured creditor of Land Estates, Frank X. Pieters, did likewise. The motions were denied and these appeals followed.

We shall make no point of the fact that the orders allowing the claims were not opposed. Of course the appellants were not entitled to notice of the master's report as to claims filed by others and in which they had no interest. The receiver did have notice and did not oppose confirmation but as no action has been taken which cannot readily be undone, if necessary, we give consideration to the appellant's position on the merits as was done below.

It was held in Nolte v. Hudson Nav. Co., 2 Cir., 31 F.2d 527, that, in a creditor's suit in the federal court where jurisdiction depended upon diversity of citizenship, claims are allowable according to the law of the forum and the assets distributable as that law requires. We adhere to that with all the more reason since Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, and hold that the New York law controls the allowance of these claims.

Putting aside for the moment...