Source: https://law.justia.com/cases/federal/appellate-courts/F2/361/610/188299/
Timestamp: 2020-01-28 06:11:39
Document Index: 119225255

Matched Legal Cases: ['§ 111', '§ 511', '§ 111', '§ 513', '§ 4376', '§ 548', '§ 102', '§ 116', '§ 516', '§ 2', '§ 148', '§ 548', '§ 41']

In the Matter of South Jersey Land Corp., Debtor.bank of Commerce, Appellant.in the Matter of Hydrocarbon Chemicals, Inc., Hyspec Container Corp., Berkeley Shore Estates, Burlington Development Co., Hydrocarbon Realty Development Co., Lanoka Harbor Land Co., Inc., and Lanoka Investment Co., Debtors.bank of Commerce, Appellant, 361 F.2d 610 (3d Cir. 1966) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Third Circuit › 1966 › In the Matter of South Jersey Land Corp., Debtor.bank of Commerce, Appellant.in the Matter of Hydroc...
In the Matter of South Jersey Land Corp., Debtor.bank of Commerce, Appellant.in the Matter of Hydrocarbon Chemicals, Inc., Hyspec Container Corp., Berkeley Shore Estates, Burlington Development Co., Hydrocarbon Realty Development Co., Lanoka Harbor Land Co., Inc., and Lanoka Investment Co., Debtors.bank of Commerce, Appellant, 361 F.2d 610 (3d Cir. 1966)
US Court of Appeals for the Third Circuit - 361 F.2d 610 (3d Cir. 1966) Argued February 4, 1966
Walter J. Bilder, Newark, N. J. (Bilder, Bilder, Silver & McCurley, Newark, N. J., of counsel, on the brief), for appellant.
Michael R. Griffinger, Newark, N. J. (Crummy, Gibbons & O'Neill, Newark, N. J., of counsel, on the brief), for appellees.
These appeals arise out of two separate orders, which, although entered in two distinct proceedings involving two separate reorganizations (the "Hydrocarbon" reorganization in No. 15557 and the "South Jersey" reorganization in No. 15556), apply to the same piece of realty on which the appellant holds a mortgage. Despite the non-existence of any substantial factual dispute, ascertainment of the essential facts necessary to a proper disposition of these appeals has perplexed the court. The briefs, appendices,1 and oral argument have shed little light on this problem. Counsel, however, have been most helpful in making further stipulations to the record on appeal.
The sole issue raised on this appeal is that the district court lacked jurisdiction to enjoin the foreclosure sale. Appellant contends that the property owned by Jersey Shore (or South Jersey)3 is not within the jurisdiction of a reorganization court as defined in § 111 of the Bankruptcy Act, 11 U.S.C. § 511: "Where not inconsistent with the provisions of this chapter, the court in which a petition is filed shall, for the purposes of this chapter, have exclusive jurisdiction of the debtor and its property, wherever located." (Emphasis supplied.)
Does the meaning of the word "property" in § 111 transcend the well established principle of distinct corporate personalities? Realizing that the answer must depend on each particular case, we believe as a general rule it does not. Though in the past this court has not hesitated to disregard the traditional theory of separate entities, Cf. In re Pittsburgh Rys., 155 F.2d 477, 483-485 & n. 15 (C.A.3), cert. denied, Philadelphia Co. v. Guggenheim, 329 U.S. 731, 67 S. Ct. 89, 91 L. Ed. 632 (1946)4 to yield to that temptation here would be unwarranted5 and might create unfavorable precedent for future cases.6 Our position in this regard is consistent with the Supreme Court's admonition "that Congress did not give the bankruptcy court exclusive jurisdiction over all controversies that in some way affect the debtor's estate." Callaway v. Benton, 336 U.S. 132, 142, 69 S. Ct. 435, 441, 93 L. Ed. 553 (1949).
Since the power to stay proceedings against the debtor or its property, 11 U.S.C. §§ 513, 516(4), 548, is necessarily limited by the jurisdiction of the reorganization court, it follows that a stay may not be issued where the mortgage foreclosure proceeding is brought against property which is not the debtor's. 6 Collier, Bankruptcy (14th ed.) ¶ 3.32 at 753; 11 Remington, Bankruptcy § 4376 at 62. There is also precedent to support the proposition that a reorganization court may not stay a proceeding involving property owned by a corporation in which the debtor is a stockholder. In re Adolf Gobel, Inc., 80 F.2d 849 (C.A.2, 1936); In the Matter of Copper Canyon Mining Co., 156 F. Supp. 535 (D. Del., 1957).
The appellant was not represented at the hearing on the rule to show cause. However, it appeals from the district court's order requiring the property to be conveyed to South Jersey. Appellant's standing before us is clear; it has a legally protected interest, see Tennessee Electric Power Co. v. T. V. A., 306 U.S. 118, 137-138, 59 S. Ct. 366, 83 L. Ed. 543 (1939), in obtaining freedom to foreclose on the property covered by the mortgage it holds. Since the South Jersey petition for reorganization was approved on February 24, 1965, the effect of a reconveyance to South Jersey is an automatic stay of the foreclosure proceedings. 11 U.S.C. § 548; see In re Maier Brewing Co., 38 F. Supp. 806 (S.D.Calif.1941).
As in the first appeal, appellant's objection is that the district court lacked jurisdiction to order a reconveyance. Appellant does not maintain that a reorganization court does not have the power to set aside fraudulent conveyances. Bankruptcy Act §§ 102, 67(d), 70(e). Nor does it argue that the conveyance from South Jersey to Jersey Shore was not fraudulent under the Act and applicable state law. N.J.Stat.Ann. 25:2-7 to 25:2-19. Its argument is simply this: Though the district court would normally have the power to set aside, declare null and void or order a reconveyance of fraudulently transferred property, it cannot do so where the property in question is the subject of an in rem proceeding in a state court prior to the filing of the reorganization petition.
Appellant relies primarily on In re River Edge Estates, Inc., 53 F. Supp. 286 (D.N.J.), aff'd, 139 F.2d 840 (C.A.3, 1943), cert. denied sub nom. Vescelius v. Wedeen, 321 U.S. 792, 64 S. Ct. 791, 88 L. Ed. 1082 (1944), for the proposition that a court which first acquires jurisdiction of a res in an in rem proceeding cannot be compelled to yield to a bankruptcy court. This court adopted that principle in affirming Judge Smith's opinion; we reaffirm that principle here. However, appellant has failed to note a distinction which is most significant. Professor Moore has most aptly described it:
"* * * It should be emphasized that in ordinary bankruptcy (as distinguished from reorganization) if a state court action is one in rem as for a mortgage foreclosure * * * the commencement of the state action before the filing of the bankruptcy petition gives the state court exclusive jurisdiction over the property. See Bryan v. Speakman [53 F.2d 463 (C.A.5, 1931), cert. denied, 285 U.S. 539, 52 S. Ct. 312, 76 L. Ed. 932 (1932)]; Emil v. Hanley (C.C.A.2d, 1942) * * * 130 F.2d 369, aff'd [In re John M. Russell] (1943) 318 U.S. 515 [63 S. Ct. 687, 87 L. Ed. 954] * * *; 1 Collier on Bankruptcy (14th ed. by Moore & Oglebay) ¶2.78; 4 Collier on Bankruptcy, op. cit. supra, ¶ 70.06. In corporate reorganization, on the other hand, the reorganization court is given the power to stay the enforcement of a lien upon the property of the debtor, § 116(4) [11 U.S.C. § 516(4)], and to require a receiver in possession of property, including a mortgage foreclosure receiver, to turn over the property to the reorganization trustee, §§ 2a(21), 257. Emil v. Hanley, supra; 6 Collier on Bankruptcy, op. cit. supra, ¶¶ 3.03, 3.10, 14.03. The reason why the Bankruptcy Act makes this distinction is simple. Ordinary bankruptcy contemplates liquidation for the benefit of unsecured creditors. The mortgagee is a secured creditor and by his foreclosure action has begun liquidation of the property subject to his lien. Hence the mortgage foreclosure court having assumed jurisdiction over a res for purposes of liquidation is allowed to retain its jurisdiction; and the foreclosure receiver (as distinguished from a general equity receivership) is in aid of the liquidation of the mortgage lien for the benefit of the secured creditor. Corporate reorganization on the other hand contemplates a rehabilitation and this usually necessitates dealing with secured debt. To that end the reorganization court is given power to supersede prior in rem proceedings and thus compel creditors, whether they be secured or unsecured, that would take under those proceedings to take under the reorganization plan." 1A Moore's Federal Practice ¶ 0.215 at 2510, n. 6.
In summary, we should point out that our affirmance of the order in the South Jersey appeal has the same effect as the order enjoining foreclosure in the Hydrocarbon appeal, which we will reverse. This is so simply because the reconveyance of the property to South Jersey automatically results in a stay of the foreclosure proceeding by virtue of § 148 of the Bankruptcy Act, 11 U.S.C. § 548. See In re Maier Brewing Co., supra.
Rule 24(2) (e) requires that the appendix shall contain those parts of the record material to the questions presented. Though we realize the difficulties encountered by counsel in this case (where the litigation is continuing in the district court), we wish to emphasize the necessity of adherence to this rule
"The effect of a grant of a corporate charter to a group of individuals is described in many ways in figurative language. Perhaps the favorite phrase is the `corporate veil' which courts are supposed to pierce from time to time as circumstances require. We think a more accurate figure is that of a cloak which on some occasions is to be worn and on other occasions is to be stripped off. To talk legal effect instead of fanciful figures of speech, the corporate fiction can be given effect in some instances and with perfect consistency, disregarded in other instances. Courts have recognized this." 155 F.2d at 484.
The classic examples of where the "veil" has been "pierced" or the "cloak" "stripped off" are set forth in 1 Fletcher, Cyclopedia Corporations §§ 41 et seq.; see also Anaconda Building Materials Co. v. Newland, 336 F.2d 625 (C.A.9, 1964)