Opinion ID: 369386
Heading Depth: 2
Heading Rank: 1

Heading: Possession of the Hotel.

Text: 24 At the time the Chapter XI petition was filed, Vita Management was operating the Adams Hotel under its lease. The legal interest that it held was limited to that leasehold interest. Prior to the settlement, Vita Management held only a management contract, no interest in the property itself. The bankruptcy court disregarded the various Vita entities in issuing its opinion. (C.R. 1246.) The court concluded: 25 This court has jurisdiction over the subject matter of the Adams Hotel, and all of its appurtenances, and it has the right to order the return of all the properties transferred in accordance with the July 10, 1975, Agreement, and it may cancel and restore all transactions as necessary to void the fraudulent conveyances. 26 C.R. 1246. 27 It is the further conclusion of this court that it has jurisdiction and authority to order a reconveyance of property though the property resides in an entity which is not before this court as a debtor or bankrupt and though the property is of a partnership interest. 28 C.R. 1252. 29 It is clear that the bankruptcy court based its jurisdiction over the July 10, 1975 settlements on Vita-Adams' interest in the Vita-PIC joint venture. This gave it jurisdiction over the hotel. 30 The district court rejected this approach. 31 (The bankruptcy court's) theory was that Vita-Adams was an alter ego of the debtors and, therefore, its joint venture interest was property of the debtor. The difficulty with this analysis is that the court also found that Vita-PIC had ceased to exist and all of its property had been transferred to PIC prior to the filing of the petition. . . . Since jurisdiction results from possession of property at the time of filing, Wikle v. Country Life Insurance Co., 423 F.2d 151, 153 (9th Cir. 1970), Vita-Adams' interest in the joint venture could not provide a basis for jurisdiction because it did not even exist at the time of filing. 32 C.R. 1735. The district court also rejected the contention that mere physical possession of the hotel sufficed to convey jurisdiction over the rights of the parties in the hotel, its fixtures and furnishings. Citing Texas Co. v. Hauptman, 91 F.2d 449 (9th Cir. 1937), the district court construed property in the statute to refer to the bundle of rights possessed by the debtor rather than the physical objects that are subject to those rights. C.R. 1736. 33 The Supreme Court has noted with respect to the scope of the bankruptcy court's summary jurisdiction: 34 . . . Congress has often left the exact scope of summary proceedings in bankruptcy undefined, and this Court has elsewhere recognized that in the absence of congressional definition this is a matter to be determined . . . after due consideration of the structure and purpose of the Bankruptcy Act as a whole, as well as the particular provisions of the Act brought in question. 35 Katchen v. Landy, 382 U.S. 323, 328, 86 S.Ct. 467, 472, 15 L.Ed.2d 391 (1966). In a Chapter XI context, the Second Circuit recently pointed out that: 36 Unlike ordinary bankruptcy, where liquidation is the object, the purpose of an arrangement is to revive a moribund business, not to bury it. See Susquehanna Chemical Corp. v. Producers Bank & Trust Co., 174 F.2d 783 (3d Cir. 1949) . . . (T)o achieve this goal without interference (requires unfettered jurisdiction). 37 Bohack Corp. v. Borden, Inc., 599 F.2d 1160, 1164 (2d Cir. 1979). But this court also has recognized the rights of those other than the debtor to a full plenary proceeding. 38 The power of a bankruptcy court to resolve adverse claims concerning the assets of the bankrupt's estate is indeed a power of imposing magnitude. Since it results in depriving adverse claimants of a plenary suit, we must be cautious lest we permit its extension to a situation that should not permit summary disposition. 39 Suhl v. Bumb, 348 F.2d 869, 871 (9th Cir.), Cert. denied, 382 U.S. 938, 86 S.Ct. 388, 15 L.Ed.2d 349 (1965). We must keep in mind the tension between the need to fashion broad remedies to revive the debtor and the need to protect the interests of third parties by preserving their right to plenary proceedings. 40 Vita interests were in physical possession of the hotel under their leasehold interest at the time their petition in Chapter XI was filed. This is not enough to give the bankruptcy court jurisdiction to resolve all claims to the hotel and its furnishings. We find that the property in the possession of the Vita interests, and thus within the summary jurisdiction of the bankruptcy court, consisted only of the leasehold estate in the hotel and the related liquor license. We also reject the notion that possession of the defunct partnership interest conveyed summary jurisdiction on the bankruptcy court. 5 41 The two cases cited by appellees for the proposition that physical possession of a piece of real estate, notwithstanding lack of title, conveys summary jurisdiction over that property to the bankruptcy court are distinguishable. In Kapelus v. A Joint Venture, 377 F.2d 815 (9th Cir. 1967), a debtor owned and possessed property and then, prior to bankruptcy, transferred legal title to creditors as a security device for the debt while maintaining possession. When the creditors would not relinquish title in accordance with a repurchase agreement, the trustee sued in bankruptcy. This court upheld summary jurisdiction. In Robinson v. Mann, 339 F.2d 547 (5th Cir. 1964), also upholding summary jurisdiction, a debtor transferred real property to his children immediately prior to filing a bankruptcy petition, but remained in possession without any other legal arrangement. The bankruptcy court asserted jurisdiction to set aside the conveyance. In each of these cases, more than mere physical possession was involved. In each continued physical possession belied any change of ownership to another party; in each ownership actually remained in the debtor. In the present case, Vita Management had not previously owned the hotel, and it was in possession under a lease agreement. 42 The present case more closely resembles Texas Co. v. Hauptman, supra, and Texas & N. O. R. R. v. Phillips, 211 F.2d 419 (5th Cir. 1954). In the Hauptman case, this court recognized that when the word 'property' is used, it may mean either the rights in a physical thing, or the physical thing itself, or both. 91 F.2d at 451. The Phillips court found that physical possession of the real property was insufficient to give the bankruptcy court summary jurisdiction over a railroad company to force specific performance of an option to purchase. In another context, the Supreme Court has recognized that at least in some cases bankruptcy courts do not have exclusive jurisdiction over the reversion right upon the termination of a leasehold held by a bankrupt. Callaway v. Benton, 336 U.S. 132, 69 S.Ct. 435, 93 L.Ed. 553 (1949). Each of these cases recognizes that a lessor holds only a portion of the legal interests of which real property consists. 43 We believe that under section 311 the property that the Vita interests possessed at the time the petition was filed consisted of Vita Management's leasehold interest. See In re Mimms & Parham, 193 F. 276 (W.D.Ky.1911). Vita Management's physical possession under the lease of the Adams Hotel did not broaden the court's summary jurisdiction into a wholesale inquiry of the past transactions of persons not before the court. Although title is not the key to summary jurisdiction, mere occupancy under a lease will not cast unfettered jurisdiction upon the bankruptcy court. The reversionary interest held by PIC under the July 10, 1965 settlements was not one of the rights possessed by Vita Management or by any other Vita interest. We can well understand the urge of the bankruptcy court to set to right the complex issues presented by this case. Bankruptcy courts do not have such comprehensive powers in summary actions. In this case Vita Management possessed a leasehold interest in the hotel and a liquor license; the bankruptcy court under section 311 therefore had summary jurisdiction only over those interests. 6 44