Court Opinion

ID: 9452378
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:39:09.168021+00
Date Added: 2024-06-11T17:33:11.742866
License: Public Domain

LUMBARD, Chief Judge
(dissenting) :
I dissent and vote to affirm Judge Tyler’s order.
Section 116(4) of the Bankruptcy Act, 52 Stat. 885 (1938), 11 U.S.C. § 516(4), empowers the district court in a Chapter X reorganization to stay the enforcement of a “lien upon the property of the debtor,” and it should do so if such enforcement would jeopardize the reorganization and if there is “some reasonable assurance that a suitable substitute will be offered” by the plan of reorganization. In re Murel Holding Corp., 75 F.2d 941, 943 (2 Cir. 1935); 2 Gerdes, Corporate Reorganizations 1451-52 (1936); see In re Prudence Co., Inc., 90 F.2d 587 (2 Cir. 1937). This Court in In re Lake’s Laundry, Inc., 79 F.2d 326 (2 Cir.), cert. denied sub nom. Lake’s Laundry, Inc. v. Braun, 296 U.S. 622, 56 S.Ct. 144 (1935), in effect equated the word “property” as used in section 116(4) with “title,” and held that the district court had- jurisdiction to stay enforcement of a lien only if the' lienor did not retain title. Judge Tyler correctly held that, under pre-Uniform Commercial Code standards, Fruehauf did not retain title to the truck bodies and trailers, since it sold them outright to Yale and only later took back security *440interests which were labeled “chattel mortgages.” Cf. Canandaigua Nat’l Bank & Trust Co. v. Commercial Credit Corp., 285 App.Div. 7, 135 N.Y.S.2d 66 (4 Dep’t 1954); 1 Gilmore, Security Interests in Personal Property § 3.3, at 68-69 (1965). Thus Judge Tyler clearly had the power to stay Fruehauf’s security interests under the Lake’s Laundry rule.
My brothers now reject the Lake’s Laundry rule, and hold that Judge Tyler would have had this power even if Fruehauf had reserved title, which it did not. This holding seems unnecessary, and perhaps premature.1 My brothers’ belief that Judge Tyler might have done what he did in a quite different case hardly compels reversal of what he did. My brothers do not purport to change the standards governing the district court’s exercise of its discretion, when it has discretion, to stay liens under section 116 (4). There is no indication in Judge Tyler’s opinion that he misconceived those standards. It is true, as my brothers emphasize, that he did not expressly characterize the equity in favor of Fruehauf, and did not explicitly state that it was outweighed by Yale’s. But Fruehauf’s lone equity, the possibility that its secured position will be jeopardized, was clearly raised by the affidavits before Judge Tyler, and he just as clearly weighed it against Yale’s need. There is thus no foundation for my brothers’ apprehension that Judge Tyler’s decision may have been “influenced, at least in part, by his erroneous finding that the trucks and trailers were the ‘property’ of Yale.” And Fruehauf has not attempted to show that in the specific circumstances of this reorganization Judge Tyler’s order was an abuse of discretion, as it must to obtain reversal. E. g., Foust v. Munson S.S. Lines, 299 U.S. 77, 83, 57 S.Ct. 90, 81 L.Ed. 49 (1936). I would therefore uphold Judge Tyler’s exercise of discretion, which, it seems to me, was the same under the Lake’s Laundry rule as under the rule my brothers now adopt.
In particular, I do not believe that we need remand so that Judge Tyler may consider whether to award Fruehauf reasonable rental for the bodies and trailers. For one thing, there is no indication in the record on appeal that Judge Tyler was asked to award rental if he denied reclamation. On the merits, no case has been found awarding rental to a lienor whose lien has been stayed under Chapter X, and rental has been expressly denied in analogous circumstances. Cf. Barth Equipment Co., Inc. v. Perlstein, 128 F.2d 253 (2 Cir. 1942); In re Wisconsin Central Ry. Co., 64 F.Supp. 251, 258-259 (D.Minn.1946). Compare In the Matter of Newjer Contracting Co., Inc., 154 F.Supp. 567 (D.N.J.1957). As a practical matter, a corporation undergoing reorganization .is generally no more able to pay rental than to discharge the lien. The record indicates that this is true here. Yale was to pay the purchase price of the bodies and trailers, without interest, over a five-year period. Their useful life is indicated by the fact that Yale depreciates them on its books at 12%% a year, so *441that they are fully depreciated in eight years. Thus a reasonable rental would apparently be approximately the same as the purchase price installments Yale has failed to pay. Moreover, if Fruehauf were entitled to rental, all of Yale’s other secured creditors would seem to be entitled to some kind of payment. Thus Judge Tyler, having stayed Fruehauf’s security interests, could not consistently award it rental, and I would not remand for a consideration of this issue.2
I would affirm Judge Tyler’s decision, and leave for determination in the normal course of the Chapter X proceedings the question of Fruehauf’s status as a secured creditor.

. The issue is broader than the permissible scope of stays under Chapter X, because all “property of the debtor” may be included in the plan of reorganization. 52 Stat. 896 (1938), 11 U.S.C. § 616(2). The holder of what would have been a security title before the Uniform Commercial Code has himself furnished (or financed) the goods he seeks to reclaim. See, e. g., N.Y. Personal Property Law, McKinney’s Consol.Laws c. 41, §§ 52 (1) (repealed) (trust receipt), 61 (repealed) (conditional sale). And one who sells goods to a corporation already in precarious-financial circumstances may justifiably seek a security interest that cannot be frozen by a Chapter X reorganization, which under my brothers’ holding seems impossible to obtain. Such considerations, if squarely raised and adequately briefed, might lead to a less sweeping extension of the “property of the debtor” and repudiation of the Lake’s Laundry rule than my brothers’, although that rule has found no defenders among commentators. See, e. g., 2 Gilmore, Security Interests in Personal Property § 44.9.1 (1965); Developments in the Law, 49 Harv.L.Rev. 1111,1134-35 (1936).

. Whether Fruehauf might be entitled to damages for any actual decline in the value of its security is a wholly different issue, which should be resolved after the plan of reorganization has been formulated and the damages, if any, are known. Cf., e. g., In re New York, N. H. & H. R.R., 147 F.2d 40, 47-48 (2 Cir.), cert. denied sub nom. Commonwealth of Massachusetts v. New York, N. H. & H. R.R., 325 U.S. 884, 65 S.Ct. 1577, 89 L.Ed. 1999 (1945); Barth Equipment Co., Inc. v. Perlstein, 128 F.2d 253 (2 Cir. 1942).