Waxman v. Kealoha, Civ. No. 2902.

• Decision Date: 26 February 1969
• Docket Number: Civ. No. 2902.
• Citation: 296 F. Supp. 1190
• Parties: Joseph L. WAXMAN, Trustee in Bankruptcy of the Hawaiian Polynesian Cultural Exchange Corporation, Plaintiff, v. James K. KEALOHA, John J. O'Connor and Daniel Christopher Kwock, Defendants.
• Court: U.S. District Court — District of Hawaii

296 F. Supp. 1190

Joseph L. WAXMAN, Trustee in Bankruptcy of the Hawaiian Polynesian Cultural Exchange Corporation, Plaintiff, v. James K. KEALOHA, John J. O'Connor and Daniel Christopher Kwock, Defendants.

Civ. No. 2902.

United States District Court D. Hawaii.

February 26, 1969.

Alexander C. Marrack, of Robertson, Castle & Anthony, Honolulu, Hawaii, for plaintiff.

Tom C. Leuteneker, Hilo, Hawaii, of the firm of Carlsmith, Carlsmith, Wichman & Case, Honolulu, Hawaii, for the defendant, James K. Kealoha.

ORDER and MEMORANDUM

WILLIAM D. MURRAY, District Judge.

Plaintiff in this action is alleged to be the duly appointed trustee in bankruptcy of the Hawaiian Polynesian Cultural Exchange Corporation. He was appointed pursuant to the order of the Court in Bankruptcy, No. 7370, Superior Court of Montreal, Quebec, Canada. Defendants, citizens of Hawaii, are the incorporators and stockholders of the corporation which was incorporated under the laws of the State of Hawaii. It is alleged that defendants each subscribed to 8,000 shares of common stock of the corporation at $10.00 per share and that each still owes $71,500 on the subscriptions. The trustee is suing in behalf of the corporation to recover this amount from each defendant.

Defendant Kealoha moves to dismiss the action on the grounds that the court lacks jurisdiction over the parties and subject matter. He bases his motion on the following theories:

(1) 11 U.S.C.A. § 46(b), Sec. 23(b) of the Federal Bankruptcy Act states that

"Suits by the receiver and the trustee shall be brought * * * only in the courts where the bankrupt might have brought * * * them if proceedings under this title had not been instituted, unless by consent of the defendant, * * *."

Defendant argues that, inasmuch as all defendants are Hawaii residents, and inasmuch as the bankrupt was a Hawaii Corporation, there is no diversity of citizenship and jurisdiction does not properly lie with the court (citing Sec. 23(b)).

(2) That plaintiff, as a foreign-appointed receiver in bankruptcy, has no extra-territorial rights to the property of defendant which this court can recognize, and that absent appointment by the forum the receiver has no capacity to sue for debts owing the corporation.

(3) That the Federal Bankruptcy Act establishes uniform rules and procedures for actions in bankruptcy, and that this court should not take jurisdiction over cases not in harmony with that Act.

(4) That granting plaintiff the right to sue in this court would unduly prejudice the rights of local creditors and citizens in favor of a foreign receiver.

Section 23 of the Federal Bankruptcy Act is not a general jurisdictional statute enlarging or limiting federal jurisdiction. Newland v. Edgar, 362 F. 2d 911 (9th Cir. 1966), (construing Sec. 23(a) of the Act). It is part and parcel of the Federal Act and refers to receivers and trustees who acquire their status under that Act. It does not purport to cover all receivers and trustees who acquire such representative status from some other source. In the instant case, the plaintiff's representative status was acquired under Canadian law. As a result, Sec. 23(b) (the statutory limitation) is inapplicable.

Plaintiff argues that this court has diversity jurisdiction under 28 U.S. C.A. § 1332. The rule has long been that representatives such as executors, administrators, guardians, trustees or receivers stand upon their own citizenship in federal courts, irrespective of the persons they represent. Nunn v. Feltinton, 294 F.2d 450 (5th Cir. 1961).

"Executors and trustees suing for other's benefit form no exception to this rule. If they are personally qualified by their citizenship to bring suit in the federal courts, the jurisdiction is not defeated by the fact that the parties whom they represent may be disqualified. This has been repeatedly adjudged. It was so adjudged as early as 1808 in Chappedelaine v. Deschenaux, 4 Cranch 306, 307, 8 U.S. 306, 2 L.Ed. 629 * * *" Susquehanna and Wyoming Valley, Railroad and Coal Co. v. Blatchford, 78 U.S. (11 Wall.) 172, 175, 20 L.Ed. 179 (1870).

Thus, unless recognition of the appointment would violate domestic law, or otherwise contravene public policy of the forum, jurisdiction would properly lie in this case.

Although one would assume that the bankruptcy courts of one country would assist those of another, such has never formally been the case. As one author has noted:

"In view of the developments in other parts of the world, the fact that the U. S. and Canada, immediate neighbours with a similar bankruptcy law, still are without any agreement on questions of bankruptcy administrations involving both countries, must appear strange. (Nadelmann, International Bankruptcy Law; Its Present Status, 5 Univ. of Toronto Law Journal 324, at 351 (1943)).

While it is true that the "power of Congress to establish uniform laws on the subject of bankruptcies throughout the United States is unrestricted and paramount", International Shoe Co. v. Pinkus, 278 U.S. 261, 265, 49 S.Ct. 108, 110, 73 L.Ed. 318 (1929), that does not prohibit the courts of this country from extending comity to judicial decisions of foreign nations where it would be just to do so. As was stated in Loucks v. Standard Oil Co., 224 N.Y. 99, 120 N.E. 198, 202 (1918):

"The courts are not free to refuse to enforce a foreign right at the pleasure of the judges, to suit the individual notion of expediency or fairness. They do not close their doors, unless help would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal."

The mere fact of the foreign appointment of a receiver in bankruptcy does not, standing alone, come into conflict with domestic bankruptcy policies. Since application of our bankruptcy law is limited to "proceedings under this title", 11 U.S.C. § 11(a), it is clear that this court can look into controversies arising under bankruptcy laws of foreign nations without defeating principles of uniformity enunciated in our law (so long as jurisdiction is otherwise proper). Thus, in absence of international treaties on the subject, one must look to principles of comity to discover whether foreign receivers may entertain suits in local courts to recover debts for the bankrupt estate.

There is no doubt that under the traditional rule, articulated in Booth v. Clark, 58 U.S. (17 How.) 321, 334, 15 L.Ed. 164 (1854) (a pre-Bankruptcy Act case dealing with inter-state jurisdictional questions), a foreign receiver cannot as of right maintain an action in a state other than that in which he was appointed, to recover assets. Since that 1854 case, numerous decisions based upon law and policy, have undermined the rule therein enunciated. Thus, in Oakes v. Lake, 290 U.S. 59 (1933) at pp. 61-62, 54 S.Ct. 13, at p. 14, 78 L.Ed. 168 the court said:

"The general rule undoubtedly is that an ordinary chancery receiver, having no other authority than that arising from his appointment as such, cannot as of right maintain an action in a state other than that in which he was appointed * * * The very terms in which the rule is expressed, however, clearly recognize that where the receiver has `other authority than that arising from his appointment as such,' he may under some circumstances maintain an action outside the state of his appointment. And so it definitely has been held.

The foreign receiver may maintain such a suit, so far at least as the federal courts are concerned, where title to the property in question has

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