Struthers Furnace Co. v. Grant

• Decision Date: 15 February 1929
• Docket Number: No. 5055.,5055.
• Citation: 30 F.2d 576
• Parties: STRUTHERS FURNACE CO. v. GRANT.
• Court: U.S. Court of Appeals — Sixth Circuit

30 F.2d 576 (1929)

STRUTHERS FURNACE CO. v. GRANT.

No. 5055.

Circuit Court of Appeals, Sixth Circuit.

February 15, 1929.

Louis J. Kane, of Cleveland, Ohio, for appellant.

A. M. Henderson, of Youngstown, Ohio, for appellee.

Before DENISON, MACK, and MOORMAN, Circuit Judges.

MACK, Circuit Judge.

Appeal from an order vacating the adjudication and dismissing the voluntary petition in bankruptcy. The order was entered upon the following stipulated facts:

On January 20, 1925, the state court appointed appellee as receiver in two consolidated suits, one to foreclose a mortgage on appellant's realty and blast furnace equipment, the other a preferred stockholder's proceeding solely, so far as the stipulation shows, for the appointment of a receiver for appellant. The latter suit "was precipitated, not only by the plaintiff therein, Louis S. Baldwin, but by W. C. Runyon, president of the company, A. B. Stough, Jules Richards, and Robert Runyon, who were directors of the company at the time."

The receiver, since his appointment, has had possession and management of the corporate property, "and all of the directors, except A. Grossman, who precipitated passage of the resolution authorizing the officers to file the petition in bankruptcy herein have dealt, either directly or indirectly, with the receiver, individually and collectively, with reference to the administration of the affairs of the receivership." One of the corporate assets was a chose in action against W. C. Runyon, in compromise of which the receiver took cash and a mortgage. Runyon has several times sought concessions for the satisfaction of this mortgage.

The voluntary petition in bankruptcy was filed April 18, 1927, by A. Grossman, pursuant to a resolution of the board of directors, authorizing such action on the ground that "said receiver has been unable to operate the business of the corporation profitably * * * the aggregate indebtedness of the corporation having increased, and * * * it is to the best interests of the corporation that its affairs be liquidated as speedily as possible." No complaint against the administration by the receiver had been made in the state court. An order of adjudication was entered immediately after the filing of the petition; the state court receiver moved to vacate it. This motion was granted on April 23d for the reason, as stated by the District Judge,¹ that "it would be a vain thing to continue the bankruptcy proceedings herein on the adjudication heretofore entered in this cause and that the parties applying for such adjudication have estopped themselves from so doing by the commencement of the proceedings in which the aforesaid state receiver was so appointed and has been so acting."

The question before us on this appeal is not as to the rights of the respective parties in the corporate property in case the adjudication in bankruptcy is deemed proper, but solely as to the validity of the adjudication. The Bankruptcy Act, in section 4a (11 USCA § 22), provides: "Any person, except a municipal, railroad, insurance, or banking corporation, shall be entitled to the benefits of this act as a voluntary bankrupt." Appellee contends that this broad language must be limited so as to exclude corporations instituting bankruptcy proceedings for the purpose of ending state court receiverships to which they have voluntarily submitted.

It is clear that the mere existence of an equity receivership does not preclude directors from assisting others in procuring an adjudication in involuntary bankruptcy, even though the state court has had control of the property for more than four months and has issued the usual injunction against interference. In re Yaryan Naval Stores Co., 214 F. 563 (C. C. A. 6). See, also, In re Moench & Sons Co. (C. C. A.) 130 F. 685 (less than four months). And the pendency of a receivership does not ordinarily prevent the filing of a voluntary petition. In re American & British Mfg. Co. (D. C.) 300 F. 839; ...