Court Opinion

ID: 6890803
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:40:54.694728+00
Date Added: 2024-06-11T16:05:50.085615
License: Public Domain

BRIGGLE, District Judge
(dissenting).
The question for decision here is of much broader import than the mere determination of the propriety of the sale of assets of a bankrupt and involves, as the opinion of the Court states, a question of conflicting jurisdiction between two District Courts. The opinion holds that ■ the Missouri Court was without jurisdiction, under the facts disclosed, to receive National Aircraft Corporation on April 19, 1944, for reorganization in the proceedings then pending in the Missouri Court for reorganization of the Christopher Engineering Company, alleged to be the parent company. This conclusion seems to be bottomed upon two principal bases: 1. That National failed to establish in the Missouri Court that it was a subsidiary of Christopher within the meaning of the Bankruptcy Act, and, 2. That in any event National being involved in liquidation proceedings in the Indiana Court is without legal authority to petition for reorganization in the Missouri Court. I cannot subscribe to either proposition.
First. Whether National was a subsidiary of Christopher is a fact question never an issue in the Indiana Court, but a question properly before the Missouri Court. Stock ownership in National never became important in the liquidation proceedings in Indiana, as it early became obvious that upon liquidation there would be insufficient assets to pay creditors. Upon the filing of National’s petition in Missouri, however, the question of stock ownership immediately became an issue. I, therefore, look no further on this question than the findings and order of the Missouri Court. On National’s petition for intervention and reorganization that Court found: “That the National Aircraft Corporation is a wholly owned subsidiary of the Christopher En*554gineering Company, a corporation, the principal debtor herein, and is entitled to file its petition in these proceedings of its parent company. * * * That said petition of National Aircraft Corporation complies with the requirements of Chapter Ten of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. That said petition * * * has been filed in good faith.” Upon these and other findings the Missouri Court proceeded to approve the petition, entered upon the process of reorganization, and among other things enjoined the sale of National’s assets in Indiana. The record does not disclose upon what evidence the Missouri Court acted and with that I think we are not concerned. The findings are sufficiently broad to support the Court’s conclusion of law that National had complied with the Act. The opinion is pregnant with a recital of facts reflecting upon the integrity of the findings of the Missouri Court, all of which I respectfully submit are irrelevant in the consideration of the questions before us. If the Missouri Court acted improvidently or reached erroneous conclusions of fact or law that was a matter to be challenged by direct appeal and not a matter for collateral consideration by the Indiana Court or by this Court. It is my judgment that we must give full faith to the findings and order of the Missouri Court.
Second. The framers of the 1938 revision of the Bankruptcy Act (commonly called the Chandler Act) had many objectives, not least of which was the reconstruction of failing businesses and avoidance of the drastic deflationary effect of liquidation upon the public economy as a whole. It cannot be denied but that it was the intention to lay the framework for rehabilitation where possible rather than liquidation. See commentary on Chandler Act, 11 U.S.C.A., preceding section 201. With this in mind it is pertinent to note certain sections of Chapter 10 dealing with corporate reorganizations. Section 126 of the Act, 11 U.S.C.A. § 526, provides for the filing of a petition for reorganization by the corporation (or creditors under some circumstances) where no other petition by or against such corporation is pending under Chapter 10. It is. to be noted that a “petition” means a petition tender Chapter 10. See Section 106 (9), 11 U.S.C.A. § 506. Section 127 of the Act, 11 U.S.C.A. § 527, then provides that a petition may be filed in a pending bankruptcy proceeding either before or after adjudication. The pending proceeding of course refers to proceedings under the liquidation provisions and not the reorganization provisions. Section 128, 11 U.S.C.A. § 528, provides for the filing of an original petition for reorganization where no bankruptcy proceedings are pending, in the territorial jurisdiction of a court where the corporation has had its principal place of business or principal assets for the major part of the preceding six months. Section 129, 11 U.S.C.A. § 529, provides that if a corporation be a subsidiary an original petition may be filed by or against it as provided in Section 128 or in the Court which has approved the petition by or against its parent corporation.
Assuming that National was in fact a subsidiary of Christopher as the Missouri Court has found, we find that the facts of our case fit perfectly into the legislative scheme as exemplified in the Chandler Act. The Missouri Court had in December, 1943, taken jurisdiction of Christopher, the parent corporation, for reorganization. National, the subsidiary, on April 19, 1944, under Section 129, intervened and asked for reorganization with its parent. That certain creditors of National had in January, 1944, invoked the jurisdiction of the Indiana Court for liquidation of National is of no moment — indeed the Act expressly contemplates that reorganization proceedings may be invoked in behalf of a corporation already in bankruptcy and following adjudication. This right seems to be unconditional and not limited as to time. The reorganization proceedings could, under Section 127 have been had in the Indiana Court; they could, under Section 129, have been had in either the Indiana Court or the Missouri Court. National, being under no compulsion or restraint in this respect, elected to file in Missouri. The Missouri Court, upon assuming jurisdiction of National, was bound, if reorganization of National was to be more than a mere gesture, to take immediate steps to preserve its assets. The usual concepts of comity between courts have no application to such a situation; neither can it be said that concurrent jurisdiction exists under such circumstances between the liquidating court and the reorganization court, inviting application of General Order 6, 11 U.S.C.A. following section 53. Neither does Section 32 of the Act, 11 U.S.C.A. § 55, dealing with instances where petitions have been filed in two different courts, have any *555application under the facts here. We are concerned here with but one liquidation proceeding and one reorganization proceeding. The former in Indiana, the latter in Missouri.
The spirit and purpose of the reorganization provisions of the Act would be thwarted if .the Indiana Court were to be permitted to review the findings of the Missouri Court — and this follows even though, as here, the Indiana Court had jurisdiction of National under the general bankruptcy section of the Act and was proceeding in good faith in its liquidation. Ordinary bankruptcy contemplates sale of assets and liquidation for the benefit of creditors, while the reorganization provisions oit Chapter 10 head in directly the opposite direction and contemplate preservation of assets, even to the extent of returning them to the debtor under some circumstances. Congress was diligent in its undertaking to give the reorganization Court a free hand. Section 111 of the Act, 11 U.S.C.A. § 511, provides for exclusive jurisdiction; Section.113, 11 U.S.C.A. § 513, clothes the reorganization court with power to stay all other proceedings concerning debtor; Section 148, 11 U.S.C.A. § 548, makes the order approving the petition an automatic stay of other proceedings, including a pending bankruptcy and Section 149, 11 U.S.C.A. § 549, provides that when such order shall become final it shall constitute a conclusive determination of jurisdiction. See In re Park Beach Hotel, 7 Cir., 96 F.2d 886; In re Maier Brewing Co., D.C., 38 F.Supp. 806.
The wisdom of permitting a subsidiary corporation, whose principal place of business and assets are located in Indiana, to intervene in the court having jurisdiction for reorganization of its parent company is not before us; that has, as I think, been clearly determined by Congress. The challenge that the petition of the subsidiary may have been conceived in iniquity and founded upon fraud is, likewise, not before us. We are hot reviewing the findings of the Missouri court which has found to the contrary and which has, by its orders, sought to gain control of the assets of the subsidiary. We are only called upon to review the propriety of an order approving the sale of assets of the subsidiary in Indiana, where such sale had been enjoined by the Missouri court. Under such circumstances I think our duty is not in doubt. The jurisdiction of the Missouri court for purposes of reorganization is paramount and cannot here be challenged. Indiana must, in my judgment, yield to Missouri.