Opinion ID: 1504496
Heading Depth: 1
Heading Rank: 1

Heading: The Intervening Petition.

Text: The intervening petition, which was filed by leave of court, set out that several years earlier the Kentucky State Telephone Company had executed its deed of trust to secure an issue of bonds which were outstanding; that default had occurred, and, under the terms of the deed of trust, the trustees had declared the entire debt due, and had intervened in the Kentucky receivership proceeding for purposes of foreclosure; and that a receiver had been appointed therein for the purposes of possessing the mortgaged property and impounding the income which was covered by the mortgage; and that they desired to proceed with such foreclosure, but were prevented by the injunction provisions of the order appointing the receiver in bankruptcy. As grounds for modifying the order appointing the receiver in bankruptcy so as to permit them to proceed in the Kentucky receivership case, the intervening petition alleged the following: That the Kentucky State Telephone Company is not a subsidiary of the alleged bankrupt; that the alleged bankrupt does not carry on its business by means of the Kentucky State Telephone Company, nor has it treated such company as a department, agent, adjunct, bureau, or part of the alleged bankrupt, nor under one management, nor has it mingled or confused or destroyed the identity of the income or funds of the Kentucky State Telephone Company; that the accounts of the Kentucky State Telephone Company have been separately kept and maintained, and that the Kentucky State Telephone Company has independently operated its own business in every respect; that, if there has been mingling of assets, property, or income of the Kentucky State Telephone Company with that of the alleged bankrupt or of the other alleged subsidiaries, such has been wrongfully done and can be readily separated by accounting; that the creditors of the Kentucky State Telephone Company have properly relied upon the assets of that company, which is not insolvent, and have a first claim thereon; that the alleged bankrupt had no interest in the stock of the Kentucky State Telephone Company earlier than August 7, 1930, by which time it had acquired the outstanding voting stock thereof; that the interveners had filed their foreclosure proceedings prior to the filing of any bankruptcy proceedings in the proper United States District Court in Kentucky; that the present bankruptcy proceeding in Missouri is not a proper proceeding wherein to move for an adjudication of bankruptcy against the Kentucky State Telephone Company; that, if it should be necessary for interveners to obtain a deficiency decree, irreparable injury would result to them through having to share the unmortgaged assets of the Kentucky State Telephone Company with the creditors of the alleged bankrupt; that the jurisdiction of the Kentucky state proceeding is prior and superior to that of the bankruptcy court in Missouri; that there is no jurisdiction in the present cause to pass upon the controversy presented by the intervening petition in a summary manner, but that such can be litigated only in a plenary suit in the court having the actual custody and right to possession of the mortgaged property, which court is the Kentucky state court; that the action of the Kentucky State Telephone Company in appearing by its counsel and consenting to the receivership in the bankruptcy proceeding was improper and invalid. The prayer of the intervening petition was that the petitioners be allowed to file their intervening petition, and that the petitioning creditors, the alleged bankrupt, the Municipal Telephone & Utilities Company, the Kentucky State Telephone Company, and the receiver in bankruptcy, be ordered to file their answer within a short date to be fixed by the court; that the order appointing the receiver in bankruptcy be modified and vacated in so far as the receivership was extended to the Kentucky State Telephone Company's property and assets; that the receiver be instructed to prosecute no further his ancillary proceeding filed in the United States District Court in Kentucky for the purpose of gaining possession of said property; that the order restraining petitioners from prosecuting their suit in the state court of Kentucky be modified; and that leave be granted the petitioners, as trustees, to continue the prosecution of their foreclosure suit in said Kentucky state court. An order was filed July 31, 1931, allowing the filing of the intervening petition. Hearing was had on the issues presented by the intervening petition, and the various parties interested were called upon to present their evidence. The interveners, the receiver in the bankruptcy proceedings, and the petitioning creditors did so. Certain of the facts were stipulated. Documentary evidence and oral testimony were introduced. On August 15, 1931, the bankruptcy court filed its order, dated August 13, 1931, denying the prayer of the intervening petition for a modification of the order of July 8, 1931. In this order of August 15, 1931, the court said: Upon the oral argument it was frankly admitted both by the attorneys for the receiver and the attorneys for the intervening petitioners that whether the original order should be modified as prayed by the interveners depended on the answer to this question of fact; was the Kentucky State Telephone Company at the time of the institution of bankruptcy proceedings against the Municipal Telephone and Utilities Company an entirely separate and distinct entity or was it only an agency and instrumentality of the Municipal Telephone and Utilities Company? If the true character of the Kentucky company was that last mentioned then its property and assets were for the purposes of administration in bankruptcy the property and assets of the Municipal Telephone and Utilities Company. From the time of filing of the bankruptcy petition all of the property and assets of the latter, including the property immediately held by the Kentucky company, were in custodia legis of the bankruptcy court and might be taken over by summary proceedings unless then held in adverse possession by another. The Kentucky company not only does not assert a separate and distinct entity but has joined in asking a single receivership on the theory that it is a mere subsidiary and agency of the Municipal Telephone and Utilities Company. The facts in evidence fully support that theory and that finding as embodied in the original order appointing the receiver. With the issue of fact so determined, this court of bankruptcy was in constructive possession of the assets of the Kentucky company from the time of the filing of the petition in bankruptcy. The subsequent appointment [of a receiver] by the Kentucky state court upon the intervening petition (in the Kentucky court) of these intervening petitioners could not have changed that situation. That receiver was not at the time of the filing of the bankruptcy petition in adverse possession of the assets of the Kentucky company. The prayer of the intervening petitioners for a modification of the order heretofore made is denied. It is so ordered.