Court Opinion

ID: 6879758
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:12:58.361535+00
Date Added: 2024-06-11T16:05:33.795152
License: Public Domain

PATTERSON, Circuit Judge
(dissenting).
I am of opinion that the district court-should have granted the petition. The Massachusetts action is for $13,000,000. The Old Colony trustees in reorganization assert liability against the trust company, not for misfeasance on the latter’s part but on the ground that it is liable for breaches of the lease committed by the New Haven simply because it held an assignment of the lease as part of the security for New Haven bondholders. For any liability that might be fastened on the trust company, it has the. undeniable right of indemnity and exoneration but of the trust estate. Scott on Trusts, sections 244, 248; Restatement of Trusts, sections 244, 248. The trust estate is the mortgage on the bulk of the New Haven system. No one suggests that the trust estate is not of sufficient value to furnish full indemnity or exoneration. So the real parties in interest in the Massachusetts suit are the security holders of the Old Colony on the one side and the New Haven bondholders on the other, and the real issue is whether the formers’ claim against the New Haven, allowed already as an unsecured claim, may be advanced to a position of priority over the claim of the New Haven bondholders. That the purpose of the suit is nothing else is admitted in the plan of reorganization proposed by the Old Colony. It is there stated that the burden of a judgment against the trust company will fall on the New Haven bondholders. In fact the proposed plan includes a compromise of the claim asserted in the suit and of the unsecured claim allowed against the New Haven estate.
The bankruptcy court by section 77, sub. a, 11 U.S.C.A. § 205, sub. a, is given exclusive jurisdiction over the debtor and its property. The meaning is that it has exclusive control over adjustment of property rights in the debtor’s estate. See Palmer v. Massachusetts, 60 S.Ct. 34, 84 L.Ed. -, decided by the Supreme Court November 6, 1939. More specifically, it is for the bankruptcy court to determine priorities in claims' and interests, as provided in section 77, sub. c(7), and this power the court" may not surrender to other courts. United States Fidelity & Guaranty Co. v. Bray, 225 U.S. 205, 32 S.Ct. 620, 56 L.Ed. 1055; United States v. Wood, 2 Cir., 290 F. 109, affirmed 263 U.S. 680, 44 S.Ct. 134, 68 L.Ed. 503. On the surface the Massachusetts action is against the trust company individually. But in its exclusive powers the bankruptcy court should not permit form to prevail over substance, nor should it be deterred by technical considerations. I am of opinion that the subject matter of the Massachusetts suit was within the exclusive jurisdiction of the bankruptcy court.
If the form of the state court suit be deemed controlling, however, the bankruptcy court in the exercise of discretion should have directed its trustees in reorganization to try out the controversy in the bankruptcy cause rather than in a separate suit in a different judicial system, and the failure to do so was clearly wrong. The ultimate if not the immediate question involved in the suit is the question of priority in the assets of the bankrupt estate. Some of the issues raised have already been passed on by the bankruptcy court in adjudicating the unsecured claim of the Old Colony against the New Haven estate. Moreover, there is a question whether the present claim is consistent with the unsecured claim allowed against the New Haven estate. All other controversies of the parties have been submitted to the bankruptcy court. The matters involved in the claims inter sese are of great complexity, hard enough to adjust equitably when concentrated in one court. No possible advantage is to be gained by dividing the responsibility and sending an important issue of priority in claims to another court for determination. The aim of the bankruptcy proceeding is reorganization, and it is difficult to see how progress may be made with a plan of reorganization as long as important litigation determinative of priorities among- security holders is pending in a state court, wholly beyond control of the bankruptcy court. The claim is not comparable to a claim against the debtor for personal injuries or death, Foust *139v. Munson S. S. Lines, 299 U.S. 77, 57 S.Ct. 90, 81 L.Ed. 49, where trial by jury in another court is both appropriate and convenient. No one has suggested here that there are issues of fact to be tried. Nor is the case like one where a suit in personam had been commenced in a state court, and receivers were later appointed by a federal court sitting in equity, as in Riehle v. Margolies, 279 U.S. 218, 49 S.Ct. 310, 73 L.Ed. 669.