Court Opinion

ID: 6884293
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:24:02.305969+00
Date Added: 2024-06-11T16:05:40.330898
License: Public Domain

CLARK, Circuit Judge
(dissenting).
Prior to this case I had been called on but once to participate in the conflict which appears to have developed in this Court between bankruptcy reorganization and state Schackno Act proceedings with regard to concerns engaged in the certificated mortgage business in New York. In re Blinrig Realty Corp., supra. There I overcame my doubts as to our emerging law because of the weakness on the facts of the case presented; indeed, we were told in argument that the district court had already dismissed the petition, notwithstanding its original approval. Now we come to another case which I find far from reassuring; and I may say the same as to In the Matter of Marine Harbor Properties, Inc., 2 Cir., 125 F.2d 296. Compare Judge Frank’s powerful dissent in the latter case, as' well as Judge Bright’s decision, D.C.S.D.N.Y., 41 F.Supp. 814, which was reversed; also the law review criticisms, Siegel, Chapter X or Schackno Act Proceedings, 20 Corn.L.Q. 56-73; 18 N.Y.U.L.Q.Rev. 399, 418. I cannot avoid the conviction that we are substituting an inadequate state proceeding for the carefully safeguarded proceedings in reorganization devised by Congress for cases such as this, where the public interest may be protected by the public agency of the Securities and Exchange Commission. And this, it seems to me, is as practically undesirable as it is legally unjustified.
Here we have strikingly illustrated the difficulties of our present approach. Perhaps foreclosure is the best way for all, but we have no real evidence on the point save for the affidavits of the appearing parties. And these show that the trustees are now acting as dogs in the manger; for they will not present the debtor’s revised plan to the state court, and that appears to be the only way it can get there. Though we cannot be sure without testimony, we can conclude that in the present state of the real estate market, a sale, even at a reduced price, might easily prove to the best interests of all, including the certificate holders. In other words, the matter ought to be before a court for decision, not left solely to the not wholly disinterested trustees.
The stress placed here upon the district judge’s finding seems to me not to dispose of the problem. He made no investigation; he had before him only the affidavits now before us. And his finding is most general, merely that the trustees’ defenses, formally pleaded, “are sufficient in law and sustained by the proof.” Moreover, his opinion shows that he relied on our previous decisions, and was unduly concerned — as I believe we have been — in the activities of the debtor and how it may have estopped itself. This, I believe, was the initial error in Brooklyn Trust Co. v. Rembaugh, supra, since repeated in the other decisions. For the statute here pertinent, authorizing dismissal of the reorganization petition when it appears “that the interests of creditors and stockholders would be best subserved” in the prior state proceeding, Bankruptcy Act, § 146(4), 11 U.S.C.A. § 546(4), requires a definite finding as to the interests of creditors and stockholders, not of the debtor. I think we should limit our former precedents to make it clear that the judge must conduct the investigation thus so clearly required (wherein, too, the assistance of the Securities and Exchange Commission could be sought and might well prove invaluable), and that we should take the first step thereto in a case such as this, where the facts already disclosed seem to call so clearly for a more searching inquiry. I would reverse f®r a hearing on the facts.