Town of Agawam v. Connors

• Decision Date: 31 March 1947
• Docket Number: No. 4187.,4187.
• Parties: TOWN OF AGAWAM v. CONNORS et al.
• Court: U.S. Court of Appeals — First Circuit

159 F.2d 360 (1947)

TOWN OF AGAWAM v. CONNORS et al.

No. 4187.

Circuit Court of Appeals, First Circuit.

January 7, 1947.

Writ of Certiorari Denied March 31, 1947.

Donald M. Macaulay, of Springfield, Mass., for appellant.

David J. Cohen, and Edward J. Flavin, both of Boston, Mass., for appellee Connors, trustee.

Before MAHONEY, GOODRICH (sitting by special assignment) and WOODBURY, Circuit Judges.

Writ of Certiorari Denied March 31, 1947. See 67 S.Ct. 1086.

MAHONEY, Circuit Judge.

This is an appeal by the Town of Agawam from the affirmance by the district court of two orders of the referee in bankruptcy which (1) allowed the trustee in bankruptcy's petition to sell the bankrupt's assets free and clear of liens and the transference of the liens to the sale proceeds, and (2) denied the Town's petition to vacate a temporary restraining order.

The Agawam Racing and Breeder's Association, Inc., the bankrupt, owned and operated a race track in the Town of Agawam, Massachusetts. The last racing meet was concluded in 1938 since in that year the voters of Hampden County, where the track was located, voted to permit no further racing in the county. Local taxes assessed for the year 1938 and all subsequent years have remained unpaid; and assessments for such years have remained substantially the same as when the track was in operation.

Because of the failure of the Racing Association to pay its 1938 taxes, the Collector of the Town, on August 23, 1939, by virtue of Massachusetts General Laws (Ter.Ed.) c. 60, §§ 53 and 54,¹ gave a tax collector's deed for these lands to the Town. The instruments of taking were duly recorded within the time specified. The Racing Association retained a statutory right of redemption and, it appears, remained in possession of the racing plant. On November 26, 1941, after the expiration of more than two years, the Town filed, in the Land Court of the Commonwealth of Massachusetts, petitions to foreclose the Racing Association's right of redemption in the manner prescribed by the statute.²

The Racing Association appeared therein and answered praying for further time in which to redeem. Hearings were continued from time to time until June 29, 1943, when a motion for final decree was allowed unless redemption was made on or before September 23, 1943. This time for redemption was extended by stipulation³ several times, the last time until June 19, 1944, when a motion for final decree was filed and continued to July 14, 1944, at 12 o'clock noon.

On July 14, 1944, at 9:50 A.M. — two hours and ten minutes before the assigned hearing in the Land Court — the Racing Association was adjudicated a voluntary bankrupt. The case was immediately referred to a referee in bankruptcy, who although refusing to issue an order restraining the Town from proceeding with its motion in the Land Court for final decree, did write a letter to counsel for the Town notifying them of the adjudication in bankruptcy and suggesting that further proceedings in the Land Court be held in abeyance temporarily. A copy of this letter was sent to the Judge of the Land Court. Notwithstanding this actual notice of the adjudication in bankruptcy, the Land Court proceeded to a hearing and allowed the motion for a final decree but no decree was entered on that date. On July 19, 1944, the referee issued a temporary restraining order enjoining the officials of the town from seeking a final decree from the Land Court and enjoining them from any attempt to alienate or transfer the property in question. On the same day the receiver filed in the Land Court a formal notice of adjudication and a petition to stay proceedings in the case. After a full hearing on July 21, the petition to stay was denied and a final decree foreclosing the right of redemption was entered.

The Racing Association filed an appeal from the order of the Land Court denying a stay of the proceedings but failed to perfect such appeal, relying upon the assurance of counsel for the Town that the outcome of pending compromise proceedings would be acceptable to the Town. In fact the compromise was accepted by the Town at a Town Meeting on February 20, 1945, but later, on July 24, 1945, was repudiated at another Town Meeting.

After more fruitless attempts to compromise the tax claims, the trustee in bankruptcy on October 2, 1945, filed a petition in the bankruptcy court for leave to sell assets free and clear of liens and to transfer such liens and rights to the proceeds of sale. The trustee contended and the district judge found that the racing plant had a substantial value in excess of the Town's tax claims. The Town of Agawam, without submitting to the jurisdiction of the Bankruptcy Court, appeared and answered that it held not a tax lien to the real estate in question but full title by reason of the decree of the Land Court, thus challenging the jurisdiction of the Bankruptcy Court to order a sale as petitioned by the trustee. Moreover, it denied the power of the Bankruptcy Court to interfere with the jurisdiction of the Land Court in the proceedings in which the right of redemption was foreclosed and an absolute title declared to be in the Town. In a separate petition filed on January 8, 1946, the Town prayed that the referee's temporary restraining order be vacated.

The referee in his findings and opinions dated February 5, 1946, allowed the trustee's petition for leave to sell and denied the petition of the Town to vacate the restraining order basing his decision upon the paramount jurisdiction of a Federal Court of Bankruptcy. The district court affirmed the action of the referee, whereupon the Town has appealed.

In the course of his opinion the district judge referred to prior reorganization proceedings under § 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, concerning the present bankrupt. He indicated that such a petition had been filed in 1935 and an order confirming the plan of reorganization entered in December, 1937, but that no final decree had ever been entered. Since the fact of termination or pendency of these reorganization proceedings was thus in doubt, we requested counsel to submit additional memoranda including docket entries to inform us of the present status of those proceedings and their effect, if any, on the subsequent proceedings in the Land Court. From such memoranda as submitted we learn that the Racing Association's petition for corporate reorganization was filed on December 27, 1935. Such petition was approved and the debtor continued in possession. A plan of reorganization was confirmed on December 27, 1937. Supporting documents indicate and the Town states that this plan was consummated before July 1, 1938. This fact does not appear controverted by the Racing Association, although both parties agree that no final decree was ever entered. Our question, therefore, is whether or not the jurisdiction of the Bankruptcy Court in the reorganization proceedings terminated inasmuch as no final decree was ever entered. If they had not terminated, serious doubt would exist as to the ability of the Land Court to assume jurisdiction over property under the jurisdiction and control of the Federal Court in reorganization proceedings. We conclude from an appraisal of the authorities cited to us that termination of jurisdiction in such a case need not await the entry of a final decree and that confirmation and consummation of the plan of reorganization suffice to effect a release of the reorganized corporation's property from the jurisdiction of the bankruptcy court. See North American Car Corp. v. Peerless Weighing & Vending Mach. Corp., 2 Cir., 1944, 143 F.2d 938, 941; Reese v. Beacon Hotel Corp., 2 Cir., 1945, 149 F.2d 610, 611. Consequently the jurisdiction of the Land Court was unfettered by any prior jurisdiction as a result of the reorganization proceedings.

Both the referee and the district judge relied for their decisions on the paramount jurisdiction of the Bankruptcy Court. The Constitution (Art. 1, Sec. 8, cl. 4) does vest Congress with paramount authority to make uniform laws concerning bankruptcies. When Congress enacts a bankruptcy act that law is therefore supreme and, when the courts exercise jurisdiction conferred upon them by such a statute, they are exercising a paramount and exclusive jurisdiction. But it is necessary that the jurisdiction so exercised be one within the powers conferred upon the courts and within the terms of the statute. Both Isaacs v. Hobbs Tie & Timber Co., 1931, 282 U.S. 734, 51 S.Ct. 270, 75 L.Ed. 645 and Gross v. Irving Trust Co., 1933, 289 U.S. 342, 53 S.Ct. 605, 77 L.Ed. 1243, 90 A.L.R. 1215 speak of the Bankruptcy Court's paramount and exclusive jurisdiction to deal with the property of the bankrupt which upon adjudication vests in the trustee in bankruptcy. But the Isaacs case involved an injunction of subsequent state mortgage foreclosure proceedings and the Gross case an injunction against state court receivers appointed within four months of bankruptcy. Straton v. New, 1931, 283 U.S. 318, 51 S.Ct. 465, 75 L.Ed. 1060, however, decided that where a judgment creditor holding a lien valid in bankruptcy on the debtor's realty commences a judgment creditor's suit in the state court more than four months before bankruptcy, the federal court sitting in bankruptcy is without jurisdiction to enjoin the prosecution of the creditor's action. See also Metcalf v. Barker, 1902, 187 U.S. 165, 23 S.Ct. 67, 47 L.Ed 122; Pickens v. Roy, 1902, 187 U.S. 177, 23 S.Ct. 78, 47 L.Ed. 128; Emil v. Hanley, 1943, 318 U.S. 515, 519-520, 63 S.Ct. 687, 87 L.Ed. 954. The court in Straton v. New cited with approval similar cases involving suits begun by attachment more than four months prior to bankruptcy as well as mortgage foreclosure proceedings begun prior to bankruptcy where the lien was valid in bankruptcy. Supra, 283 U.S. at page 326, 51 S.Ct. 465, 75 L.Ed. 1060. The basis of the decision in Straton v. New was the...