Court Opinion

ID: 6898919
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:52:54.312981+00
Date Added: 2024-06-11T16:06:06.045619
License: Public Domain

KERNER, Circuit Judge
(concurring in part and dissenting in part).
In the District Court appellant did not raise the question or make any point of the fact that no notice had been given to the cestuis que trusten-t. His only contention was that the court lacked power to name the trustees. In this court he argues that the action of the court deprived the certificate holders of their rights, and that a bankruptcy court, while possessing equitable powers, is not a general court of equity. It is a creation of a Congressional statute which is the source of its power and limitation on that power. In other words, if the power to appoint trustees is not in the Act, the bankruptcy court does not have such power.
From the language of Case v. Los Angeles Lumber Co., 308 U.S. 106, 125, 60 S.Ct. 1, 84 L.Ed. 110, in which the Supreme Court interpreted the Act, it is clear that a bankruptcy court has “ ‘exclusive jurisdiction of the debtor and its property wherever located for the purposes of this section.’ ” Moreover, once the court acquires control, it “is then pervasive.” In explanation of this general rule, the Court, in a lengthy footnote at page 126 of 308 U.S., at page 12 of 60 S.Ct., states:
“These powers embrace not only the specifically enumerated [emphasis added] powers contained in § 77B but also ‘all the powers, not inconsistent with this section, which a Federal court would have had it appointed a receiver in equity of the prop- , erty of the debtor by reason of its inability to pay its debts as they mature.’ * * * ”
Later, in American United Mutual Life Ins. Co. v. City of Avon Park, 311 U.S. 138, 145, 61 S.Ct. 157, 161, 85 L.Ed. 91, 136 A.L.R. 860, the Court said: “ ‘A bankruptcy court is a court of equity, § 2, 11 U.S.C. § 11, 11 U.S.C.A. § 11, and is guided by equitable doctrines and principles except in so far as they are inconsistent with the Act. * * * A court of equity may in its discretion in the exercise of the jurisdiction committed to it grant or deny relief upon performance of a condition which will safeguard the public interest.’ ” See also Young v. Higbee Co., 324 U.S. 204, 65 S.Ct. 594, 89 L.Ed. 890, and Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed.. 281.
*446Appellant accepts this legal proposition as to the general powers of a bankruptcy court but disputes its applicability as to the specific act of appointing trustees of a common law trust prior to the approval of a plan of reorganization, which he contends is contrary to the method of selection of trustees provided in the Declaration of Trust under consideration.
Article II of the Declaration of Trust provides that:
“The Trustees hereunder shall be three (3) in number until a different number shall be fixed by the Trustees as hereinafter provided, provided, however, that there shall never be less than two (2) Trustees hereunder. * * *
“In case of any vacancy of the Trustees occurring by the death, resignation, removal or disability or for any other reason, a new Trustee or Trustees shall be appointed by the remaining Trustees. * * * ”
Upon the resignation of Paul Darrow and the death of Max Levy, trustees under the trust, the remaining trustee, appellant, elected J. Frank Higgins as trustee of the Trust. Appellant and Higgins thereupon petitioned the District Court to approve the action which, it was alleged, was in conformance with the terms of the Declaration of Trust. Upon a hearing the petition was rejected. Subsequently, the court approved two trustees, neither of whom was Higgins. It is immaterial if the court approved the trustees upon the general prayer for relief in appellant’s petition, because if he had the power he could approve them under the general jurisdictional authority of the bankruptcy court.
Upon a fair reading of the Declaration of Trust it is clear that the method of selecting trustees had been vitiated by the resignation and death of two of the trustees. The Declaration expressly provided that “there shall never be less than two Trustees.” While it is true the trustees were to be appointed by the remaining trustees, that condition was non-existent, and appellant as the sole remaining trustee did not possess the power under the Declaration. An impasse was created which seemingly could only be resolved by the court’s exercise of its equitable powers.
In rejecting the petition to appoint Higgins, Judge Holly recognized the dilemma when he stated that he had the power to appoint the successor trustees because the method prescribed by the Declaration had been obviated. Such action appears to be clearly in accord with the language of Young v. Higbee Co., supra, in which the Supreme Court said 324 U.S. at page 214, 65 S.Ct. at page 599, 89 L.Ed. 890: “Courts of bankruptcy are courts of equity and exercise all equitable powers unless prohibited by the Bankruptcy Act.” This, in accord with the cases previously cited, is an affirmative power subject only to ennumerated restrictions in the Act. Appellant is incorrect in his anaysis of the Act when he argues that if the specific power is not in the Act then the court is precluded from exercising it. It is unquestioned that a bankruptcy court is one of limited jurisdiction and must look to the Act for its source of power, but its jurisdiction is unlimited in respect of its power over proceedings in bankruptcy specifically made subject to its jurisdiction by the Act. 6 Am. Jur. p. 531.
The District Court had jurisdiction of the debtor. The method provided for the administration of its property had broken down. By the terms of the Declaration, which he was purporting to follow, appellant was without power to appoint successor trustees. Nevertheless, the District Court held a hearing on Mr. Higgins’ qualifications. For reasons concededly within the discretion of the District Court, he was rejected. The status of the debtor, then, admittedly was property without administration — a ship without a crew. To remedy this Judge Holly suggested that the parties in- interest agree on the names of two persons to fill the vacancies. Appellant was represented and five names were selected and submitted to the court. From this list two were selected and approved by the court.
Appellant says that by appointing the two trustees the court dominated and deprived the debtor of any inclination the debtor might otherwise have had to object to the plan of reorganization proposed by the court trustee. In support of his position he cites In re Bush Terminal Co., 2 Cir., *44778 F.2d 662; In re Plankinton Bldg. Co., 7 Cir., 138 F.2d 221; and In re J. P. Linahan, Inc., 2 Cir., 111 F.2d 590. These cases are not in point. They stand for the proposition that when corporate property is the subject of bankruptcy jurisdiction the shareholders as the real parties in interest ordinarily should not be deprived of their right to meet and elect a board of directors before a plan of reorganization has been approved.
The trust involved in this case is a true business or common law trust. It is complete and comprehensive, and while comparable to a corporation it is fundamentally different. The stockholders of a corporation control the board of directors but the beneficiary holders of a common law trust are not associated in carrying on the business; they have neither the mutual rights nor obligations and do not control the action of the trustees, Schumann-Heink v. Folsom, 328 Ill. 321, 159 N.E. 250, 58 A.L.R. 485; In re Estate of Conover, 295 Ill.App. 443, 14 N.E.2d 980, and once the beneficiary holders have elected the original trustees, they are not in control and cannot select the successor trustees.
In our case appellant as trustee is interested in the debtor and in the preservation of the property of the trust, and the Declaration expressly provides that “there shall never be less than two Trustees.” It was a proper case, under the circumstances here appearing, for the appointment by the court of the two additional trustees upon the application of any person interested, since a court of equity will not permit a trust properly created to fail for want of a trustee, but will appoint a trustee where no other provision for the appointment exists. Churchill v. Marr, 300 Ill. 302, 311, 133 N.E. 335. In this situation, the court having jurisdiction of the debtor was well within its rights in taking the action it did.
The argument that the action of the District Court deprived the certificate holders of their rights in the trust is likewise not well taken. As already noted, under the Declaration of Trust the certificate holders had no right to a voice in management or in the selection of successor trustees, and they did not acquire that power when the provision to select trustees under the Declaration became inoperative. In this situation, the trial judge in the exercise of his equitable jurisdiction in the furtherance of the proper administration of the reorganization was empowered to fill the vacancies. Churchill v. Marr, supra, 300 Ill. 311, 133 N.E. 335; French v. Northern Trust Co., 197 Ill. 30, 38, 64 N.E. 105; and Attorney General v. Barbour, 121 Mass. 568, 574. His powers in that regard are broad and varied and are ample for the exigencies of varying situations. American United Mutual Life Ins. Co. v. City of Avon Park, supra, 311 U.S. 146, 61 S.Ct. 162, 85 L.Ed. 91, 136 A.L.R. 860. The trial judge, by filling the vacancies, deprived no one of any right but simply appointed trustees in order to render secure the debtor’s right to be heard in the reorganization proceedings.
And the fact that no notice was given to the certificate holders did not render the action of the court in appointing the two trustees void. True, in most cases, it is proper to call before the court those immediately interested so that they may be heard in the appointment of new trustees, still in a case such as this, it is a rule chiefly of convenience. Sanders v. Hall, 10 Cir., 74 F.2d 399, and cases cited. See also In re Jones’ Estate, 236 Iowa 563, 19 N.W.2d 611. But be that as it may, it was within the discretion of the court since a reorganization proceeding is a proceeding in rem. The formal notices required by Chapter X of the Bankruptcy Act afford information of the proceeding to creditors and holders of equity interests and the means of participating are readily available to them, if they evince an interest in the proceeding.
I would affirm the order.