Source: http://www.chanrobles.com/usa/us_supremecourt/417/467/case.php
Timestamp: 2019-10-17 23:00:59
Document Index: 530967329

Matched Legal Cases: ['§ 77', '§ 68', '§ 108', '§ 205', '§ 77', '§ 77', '§ 77', '§ 68', '§ 108', '§ 77', '§ 68']

The Penn-Central Transportation Co. is in bankruptcy reorganization under § 77 of the Bankruptcy Act, 11 chanroblesvirtualawlibrary
Ordinarily, where a court has primary jurisdiction over the parties and over the subject matter, the power to resolve the amount of the claim and the counterclaim is chanroblesvirtualawlibrary
clear. Indeed, under the Federal Rules of Civil Procedure, the counterclaim may be compulsory. Rule 13(a). [Footnote 1] That is the procedure under § 68 of the Bankruptcy Act, 11 U.S.C. § 108. [Footnote 2] chanroblesvirtualawlibrary
The problem of the bankruptcy Reorganization Court is somewhat different. Liquidation is not the objective. Rather, the aim is by financial restructuring to put back into operation a going concern. [Footnote 3] That entails two basic considerations: chanroblesvirtualawlibrary
Section 77a gives the Reorganization Court "exclusive jurisdiction of the debtor and its property wherever located." [Footnote 7] 11 U.S.C. § 205(a). In furtherance of its chanroblesvirtualawlibrary
long-range responsibilities the Reorganization Court enjoined secured creditors from selling collateral to reduce their claims. [Footnote 8] It then went on to bar enforcement of liens against the debtor, taking possession of its property, or obtaining judgments against the debtor, except for specified purposes. [Footnote 9] One court seized upon the last provision in the order which says
The term "fair and equitable" has a long history going back at least to Northern Pacific R. Co. v. Boyd, 228 U. S. 482, and Kansas City Terminal R. Co. v. Central Union Trust Co., 271 U. S. 445, whose fixed principle has been carried over into § 77e by our decisions. [Footnote 11] The plan chanroblesvirtualawlibrary
is, by the terms of § 77, a product of the Interstate Commerce Commission and the Reorganization Court working cooperatively together, New Haven Inclusion Cases, 399 U. S. 392, 399 U. S. 431. The public interest, as well as the interests of creditors and stockholders, is at issue. [Footnote 12] RFC v. Denver & R. G. W. R. Co., 328 U. S. 495, 328 U. S. 535.
The Court concludes that, since the allowance of a setoff in a § 77 reorganization would grant "a preference to the claim of one creditor over the others by the happenstance that it owes freight charges that the others do not," such setoffs should be disallowed "[a]s a general rule of administration." Ante this page. While I agree that the District Court should not have permitted a setoff in this case, I think that the broad rule adopted by chanroblesvirtualawlibrary
While judicial setoffs are specifically authorized in straight bankruptcy cases, § 68 of the Bankruptcy Act, 11 U.S.C. § 108, no express approval of them appears in the statute governing § 77 reorganizations. [Footnote 2/1] In Lowden v. Northwestern National Bank & Trust Co., 298 U. S. 160 (1936), this Court stated that the approval of setoffs in § 68 did not control in railroad reorganizations, but "governs, if at all, by indirection and analogy according to the circumstances. The rule to be accepted for the purpose of such a suit is that enforced by courts of equity, which differs from the rule in bankruptcy chiefly in its greater flexibility, the rule in bankruptcy being framed in adaptation to standardized conditions, and that, in equity varying with the needs of the occasion, though remaining constant, like the statute, in the absence of deflecting forces." Id. at 164-165. [Footnote 2/2] chanroblesvirtualawlibrary
Section 77a gives the Reorganization Court "exclusive jurisdiction of the debtor and its property wherever located." (Emphasis added.) It has been commonly accepted in the federal courts that "property" within the meaning of this section includes intangibles such as choses in action. See 2 W. Collier, Bankruptcy 1123.05[4], p. 485 (1971), and cases there cited. It follows, therefore, that respondent's debt to the Penn Central fell within the "exclusive jurisdiction" of the Reorganization Court immediately upon the approval of the petition for reorganization. While such jurisdiction may not empower the Reorganization Court to enforce the cause of action, see id. at 489-490; In re Roman, 23 F.2d 556 (CA2 1928) (L. Hand, J.), it certainly does empower the chanroblesvirtualawlibrary
court to protect the "property" and to immunize it from diminution through setoff or counterclaim. To hold otherwise would be inconsistent with the function of the Reorganization Court to consolidate and protect the assets of the petitioning corporation. Callaway v. Benton, 336 U. S. 132, 336 U. S. 147 (1949); Warren v. Palmer, 310 U. S. 132, 310 U. S. 139-141 (1940); Ex parte Baldwin, 291 U. S. 610, 291 U. S. 615 (1934).
While the matter is not wholly free from doubt, I am persuaded that the Reorganization Court in this proceeding did, in fact, enjoin the allowance by any other court of judicial setoffs against any debts owed to the Penn Central. [Footnote 2/4] On this basis, I join the judgment of the Court. chanroblesvirtualawlibrary
It may be that, upon a proper showing to the District Court for the Northern District of Illinois, the trustees could have satisfied that court that the allowance of a setoff in this case would be inconsistent with higher priorities of the reorganization. But no such showing was made by the trustees, and they were content to rely on the ex parte order of the Reorganization Court, which made no pretense of considering matter on a case-by-case chanroblesvirtualawlibrary