Source: http://ny.findacase.com/research/wfrmDocViewer.aspx/xq/fac.19750520_0040346.C02.htm/qx
Timestamp: 2018-03-18 10:04:15
Document Index: 501742075

Matched Legal Cases: ['§ 3', '§ 3', '§ 21', '§ 1', '§ 1', '§ 5', '§ 23', '§ 21', '§ 67']

IN THE MATTER OF JERCYN DRESS SHOP, A PARTNERSHIP. JACK A. SCHERER AND EVA SCHERER, AS GENERAL PARTNERS, JOINTLY, APPELLEES. LESLIE FAY SALES, A DIVISION OF LESLIE FAY INC., FALCHICK DRESS CO., INC., CAMPUS JUNIORS, INC., APPELLANTS
Appeal from an order of the United States District Court for the Eastern District of New York, Neaher, J., affirming the order of the Bankruptcy Court dismissing appellants' involuntary petition in bankruptcy insofar as it was addressed to the general partners of Jercyn because assignment of partnership assets for the benefit of partnership creditors was not ipso facto an individual act of bankruptcy, as well, by the general partners under § 3a of the Bankruptcy Act.
Leslie Fay Sales, a division of Leslie Fay, Inc., Falchick Dress Co., Inc., and Campus Juniors, Inc., three creditors of Jercyn Dress Shop (Jercyn), a partnership, appeal from the district court's decision and order affirming the bankruptcy court's dismissal of appellants' involuntary petition in bankruptcy to the extent that it was addressed against Jercyn's partners, Jack A. Scherer and Eva Scherer, husband and wife, as opposed to the partnership entity itself, on the ground that these partners had not committed an act of bankruptcy within the contemplation of § 3a of the Bankruptcy Act (the Act), 11 U.S.C. § 21(a).*fn1
On November 15, 1972, the appellants filed an involuntary petition in bankruptcy in the United States District Court for the Eastern District of New York against " JERCYN DRESS SHOP, A Partnership, and JACK A. SCHERER, and EVA SCHERER, as General Partners, Jointly." The petition alleged only the following act of bankruptcy:
As reflected inter alia by §§ 1(23), 5a and 5j of the Bankruptcy Act, 11 U.S.C. §§ 1(23), 23(a), 23(j),*fn2 Congress has adopted the "entity theory" of partnership bankruptcies by which "a partnership may be adjudged a bankrupt as a separate entity without reference to the bankruptcy of the partners as individuals." Liberty National Bank v. Bear, 276 U.S. 215, 220-221, 72 L. Ed. 536, 48 S. Ct. 252 (1928). See also 1A Collier, Bankruptcy para. 5.03, at 694-698 (14th ed. 1975). Under § 5b of the Act (11 U.S.C. § 23(b)),*fn3 a partnership may be adjudged a bankrupt either upon its filing of a voluntary petition or upon the filing of an involuntary petition against it. In keeping with the entity theory, therefore, the partnership must be able to commit at least some acts of bankruptcy (see 11 U.S.C. § 21(a)) separate and distinct from personal acts of bankruptcy committed by its partners. This is most clearly reflected in Liberty National Bank v. Bear, supra, in which the Supreme Court upheld the adjudication of the bankruptcy of a partnership entity alone where the bankruptcy proceedings were initiated by an involuntary petition alleging that the partnership had made a general assignment of partnership assets for the benefit of its creditors. See 276 U.S. at 217. While in Liberty, unlike the instant case, the involuntary petition did not expressly seek an adjudication of the bankruptcy of the individual partners based upon the same general assignment that was alleged to constitute an act of bankruptcy by the partnership (see 276 U.S. at 217), it is impossible to read Liberty, as a whole, as standing for the proposition asserted by appellants that only when creditors fail to allege in an involuntary petition that the general assignment by the partnership constituted an act of bankruptcy by the individual partners as well, can the partnership be adjudged bankrupt as a separate entity. Such an interpretation would radically undercut the Act's partnership entity theory because a partnership can never act except through its partners.
Appellants object that under this interpretation preferential transfers by the individual partners, should they later become bankrupt, and by the partnership will bear different dates to the possible detriment of partnership creditors. It is apparent, however, that any differences in such filing dates can also work to the advantage of partnership creditors. In Liberty National Bank v. Bear, supra, for example, the bank's judgment lien against the real estate of the individual partners withstood an attack under §§ 67c*fn4 and 67f*fn5 of the Bankruptcy Act of 1898 where the partners' bankruptcy petitions were filed more than four months after the bank obtained the judgment lien which was upon the real estate owned by the partnership as well as that owned by the individual partners, even though the lien was invalid as against the partnership itself since a bankruptcy petition had been filed against the partnership within four months of the obtaining of the lien.
Furthermore, partnership creditors are adequately protected by other provisions of the Act. Any conversion of partnership property into property of an individual partner, for example, must have been bona fide and without intent to hinder, delay, or defraud creditors. Where an insolvent partnership has made a fraudulent transfer in order to conceal assets from its creditors, those assets belong to the insolvent partnership and its creditors. See 1A Collier, Bankruptcy para. 5.28, at 738 (14th ed. 1975). Also the partnership trustee cannot prevent the partnership creditors from obtaining in an appropriate forum in personam judgments against the individual partners on unpaid partnership debts. See First National Bank of Herkimer v. Poland Union, 109 F.2d 54 (2 Cir. 1940), cert. denied, 309 U.S. 682, 84 L. Ed. 1026, 60 S. Ct. 723 (1940).
Most importantly, Rule 108(c) requires each unadjudicated general partner to file a statement of his personal assets and liabilities within 10 days of the qualification of the trustee in the partnership bankruptcy proceedings (see 1A Collier, Bankruptcy para. 5.25, at 734 (14th ed. 1975)), and the bankruptcy court in appropriate circumstances may administer the personal estates (Francis v. McNeal, 228 U.S. 695, 57 L. Ed. 1029, 33 S. Ct. 701 (1913); 1A Collier, Bankruptcy para. 5.25, at 734 (14th ed. 1975)) in order to insure that property in excess of each individual's debts is available for payment of the partnership debts (see In re Ira Haupt & Co., 240 F. Supp. 369 (S.D.N.Y. 1965); 1A Collier, Bankruptcy para. 5.25, at 734.1-734.2 (14th ed. 1975)) even though the nonadjudged general partners have not personally committed an act of bankruptcy and cannot obtain a discharge (see First National Bank of Herkimer v. Poland Union, supra, at 56-57; J. Wm. Moore & W. Phillips, Debtors' And Creditors' Rights, at 5-94 (1966)), because each general partner remains primarily liable for the partnership debts ...