Sampsell v. Imperial Paper Color Corporation, No. 601

CourtUnited States Supreme Court
Writing for the CourtDOUGLAS
Citation313 U.S. 215,85 L.Ed. 1293,61 S.Ct. 904
Docket NumberNo. 601
Decision Date28 April 1941
PartiesSAMPSELL v. IMPERIAL PAPER & COLOR CORPORATION

313 U.S. 215
61 S.Ct. 904
85 L.Ed. 1293
SAMPSELL

v.

IMPERIAL PAPER & COLOR CORPORATION.

No. 601.
Argued March 31, 1941.
Decided April 28, 1941.
Rehearing Denied June 2, 1941.

See 313 U.S. 600, 61 S.Ct. 1107, 85 L.Ed. —-.

Mr. Thomas S. Tobin, of Los Angeles, Cal., for petitioner.

Mr. iram E. Casey, of Los Angeles, Cal., for respondent.

Mr. Justice DOUGLAS delivered the opinion of the Court.

One Downey was adjudged a voluntary bankrupt in November, 1938. Prior to June, 1936, Downey had been engaged in business, unincorporated, and had incurred a debt to the predecessor of Standard Coated Products Corporation of approximately $104,000. In that month he formed a corporation, Downey Wallpaper & Paint Co., under the laws of California. Downey, his wife and his son were the sole stockholders, directors and officers.

Page 216

Downey's stock of goods was transferred to the corporation1 on credit, which was extended from time to time. He leased space in the store building occupied by him to the corporation, which continued business at the old stand. Except for qualifying shares,2 neither he nor the other members of his family paid cash for the stock which was issued to them3 but received most of those shares a few months prior to bankruptcy in satisfaction of the balance of the obligation owed to him by the corporation.4 Respondent extended credit to the corporation. At the time of Downey's bankruptcy respondent's claim amounted to about $5,400 and was unsecured.

On petition of the trustee in bankruptcy, the referee issued an order to show cause directed to the corporation, Downey, his wife and son why the assets of the corporation should not be marshalled for the benefit of the creditors of the bankrupt estate and administered by the trustee.5 Downey answered. There was a hearing. The referee found, inter alia, that the transfer of the property to the corporation was not in good faith but was made for the purpose of placing the property beyond the reach of Downey's creditors and of retaining for

Page 217

Downey and his family all of the beneficial interest therein; that the stock was issued in satisfaction of Downey's claim against the corporation, when Downey was hopelessly insolvent, to prevent Downey's creditors from reaching the assets so transferred; that the corporation was 'nothing but a sham and a cloak' devised by Downey 'for the purpose of preserving and conserving his assets' for the benefit of himself and his family; and that the corporation was formed for the purpose of hindering, delaying and defrauding his creditors. The referee accordingly ordered that the property of the corporation was property of the bankrupt estate and that it be administered for the benefit of the creditors of the estate. That order was entered on April 7, 1939. No appeal from that order was taken.

Respondent, who was not a party to that proceeding, later filed its claim stating that as a creditor of the corporation it had a prior right to distribution of the funds in the hands of the trustee received from the liquidation of the assets of the corporation. It secured an order to show cause why the trustee should not so apply such funds. The trustee objected to the allowance of the claim as a prior claim and contended that it should be allowed only as a general unsecured claim. There was a hearing. The referee found that respondent w th knowledge of Downey's indebtedness was instrumental in getting him to form the corporation and had full knowledge of its fraudulent character. He disallowed respondent's claim as a prior claim but allowed it as a general unsecured claim. That order was confirmed. On appeal, the Circuit Court of Appeals reversed, holding that respondent's claim should be accorded priority against the funds realized from the liquidation of the corporation's property. 9 Cir., 114 F.2d 49. We granted the petition for certiorari, 312 U.S. 669, 61 S.Ct. 449, 85 L.Ed. —-, because of the importance in administration of the bankruptcy act of the questions raised.

Page 218

We think the Circuit Court of Appeals was in error.

1. The order entered in the summary proceedings against Downey, his wife, his son and his family corporation was a final order binding as between the parties. There can be no question but that the jurisdiction of the bankruptcy court was properly exercised by summary proceedings. The circumstances are many and varied where an affiliated corporation does not have, as against the trustee of the dominant stockholder, the status of a substantial adverse claimant within the rule of Taubel-Scott-Kitzmiller Co., Inc., v. Fox, 264 U.S. 426, 44 S.Ct. 396, 68 L.Ed. 770. The legal existence of the affiliated corporation does not per se give it standing to insist on a plenary suit. In re Muncie Pulp Co., 2 Cir., 139 F. 546; W. A. Liller Bldg. Co. v. Reynolds, 4 Cir., 247 F. 90; In re Rieger, Kapner & Altmark, D.C., 157 F. 609; In re Eilers Music House, 9 Cir., 270 F. 915; Central Republic Bank & Trust Co. v. Caldwell, 8 Cir., 58 F.2d 721; Commerce Trust Co. v. Woodbury, 8 Cir., 77 F.2d 478; Fish v. East, 10 Cir., 114 F.2d 177.

Mere legal paraphernalia will not suffice to transform into a substantial adverse claimant a corporation whose affairs are so closely assimilated to the affairs of the dominant stockholder that in substance it is little more than his corporate pocket. Whatever the full reach of that rule may be, it is clear that a family corporation's adverse claim is merely colorable where, as in this case, the corporation is formed in order to continue the bankrupt's business, where the bankrupt remains in control, and where the effect of the...

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245 practice notes
  • Boston and Maine Corp., In re, No. 83-1086
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • September 30, 1983
    ...of equity. Pepper v. Litton, 308 U.S. 295, 307, 60 S.Ct. 238, 245, 84 L.Ed. 281 (1939); see Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215, 219, 61 S.Ct. 904, 907, 85 L.Ed. 1293 (1941). We have previously articulated the standard of "It is not for us to pass upon the myriad factual ......
  • Prudential Reinsurance Co. v. Superior Court, No. S014036
    • United States
    • United States State Supreme Court (California)
    • November 30, 1992
    ...Co. (3d Cir.1941) 117 F.2d 999, 1002.) "The theme of the Bankruptcy Act is 'equality of distribution' ( Sampsell v. Imperial Paper Corp., 313 U.S. 215, 219, 61 S.Ct. 904, 907, 85 L.Ed. 1293); and if one claimant is to be preferred over others, the purpose should be clear from the statute." ......
  • In re Vermont Toy Works, Inc., Bankruptcy No. 85-252
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court —District of Vermont
    • December 23, 1987
    ...Inc. (In the Matter of S.I. Acquisition, Inc.), 817 F.2d 1142, 1152-53 (5th Cir.1987). See, Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215, 219, 61 S.Ct. 904, 907, 85 L.Ed. 1293, 1298 (1941) reh'g. denied, 313 U.S. 600, 61 S.Ct. 1107, 85 L.Ed. 1552 (1941) (property of the alter ego ......
  • In re Kelton Motors Inc., Bankruptcy No. 89-00255
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court —District of Vermont
    • September 26, 1990
    ...adjudicate equities arising out of the relationship between the several creditors is complete. Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215, 219, 61 S.Ct. 904, 907, 85 L.Ed. 1293, 1298 (1941) reh'g denied, 313 U.S. 600, 61 S.Ct. 1107, 85 L.Ed. 1552 (1941) (citations omitted) (emph......
  • Request a trial to view additional results
247 cases
  • Boston and Maine Corp., In re, No. 83-1086
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • September 30, 1983
    ...of equity. Pepper v. Litton, 308 U.S. 295, 307, 60 S.Ct. 238, 245, 84 L.Ed. 281 (1939); see Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215, 219, 61 S.Ct. 904, 907, 85 L.Ed. 1293 (1941). We have previously articulated the standard of "It is not for us to pass upon the myriad factual ......
  • Prudential Reinsurance Co. v. Superior Court, No. S014036
    • United States
    • United States State Supreme Court (California)
    • November 30, 1992
    ...Co. (3d Cir.1941) 117 F.2d 999, 1002.) "The theme of the Bankruptcy Act is 'equality of distribution' ( Sampsell v. Imperial Paper Corp., 313 U.S. 215, 219, 61 S.Ct. 904, 907, 85 L.Ed. 1293); and if one claimant is to be preferred over others, the purpose should be clear from the statute." ......
  • In re Vermont Toy Works, Inc., Bankruptcy No. 85-252
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court —District of Vermont
    • December 23, 1987
    ...Inc. (In the Matter of S.I. Acquisition, Inc.), 817 F.2d 1142, 1152-53 (5th Cir.1987). See, Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215, 219, 61 S.Ct. 904, 907, 85 L.Ed. 1293, 1298 (1941) reh'g. denied, 313 U.S. 600, 61 S.Ct. 1107, 85 L.Ed. 1552 (1941) (property of the alter ego ......
  • In re Kelton Motors Inc., Bankruptcy No. 89-00255
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court —District of Vermont
    • September 26, 1990
    ...adjudicate equities arising out of the relationship between the several creditors is complete. Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215, 219, 61 S.Ct. 904, 907, 85 L.Ed. 1293, 1298 (1941) reh'g denied, 313 U.S. 600, 61 S.Ct. 1107, 85 L.Ed. 1552 (1941) (citations omitted) (emph......
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