Court Opinion

ID: 9637249
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:01:16.934008+00
Date Added: 2024-06-11T18:09:54.649000
License: Public Domain

SWAN, Circuit Judge
(dissenting).
These are appeals from two orders in an equity receivership. One of the orders approved the final report and accounting of the receivers of United Oil Producers Corporation and discharged the receivers in respect of all matters embraced in their said report and accounting; the other order denied a motion for a discovery and inspection of the books of account and other papers of the receivership. The appellants are the executors of William W. Cohen, deceased, and his widow, sole beneficiary under his will. Any rights they may have to surcharge the receivers or to inspect the books and papers of the receivership are derived under the will by reason of Cohen’s ownership of $32,200 of bonds issued by United. Unless Cohen at (he time of his death in 1940 had rights against the receivers based on their conduct as such receivers, the appellants have no standing to object to the final accounting. It was imperative, therefore, for them to prove that Cohen did have such rights. In my opinion they failed to make such proof. Consequently the orders should be affirmed.
The theory upon which the appellants assert a right to object to the receivers’ accounting is that they were guilty of a breach of fiduciary duty in not reporting to United’s bondholders and to the district court that United’s assets were of sufficient value to pay the bonds in full and in consequence of the concealment of such information the assets were sold at judicial sales in 1929 at too low a price. Such concealment is said to be equivalent to a fraudulent misrepresentation as to the value of United s bonds and to have caused the bondholders who elected to take cash instead of new securities under the plan of reorganization, to accept only 68 cents on the dollar instead of getting full payment of their bonds. Assuming these allegations to be true, the receivers’ misrepresentation was a breach of duty to the owners of bonds at the time when the misrepresentation was made, that is, at a time prior to the judicial sales. The $32,200 of bonds upon which Cohen received 68 cents on the dollar were acquired by him at some unspecified date after the judicial sales. Hence the receivers’ misrepresentations as to their value were not a tort against Cohen but against the owner of the bonds in November 1929. In Elias v. Clarke, 143 F.2d 640, 644, we held that under New York law a claim for fraud or misrepresentation in connection with an obligation evidencing a debt, whether for damages or rescission, does not -pass with the transfer of the obligation in the absence of a special assignment of the claim. Cohen was a securities broker in New York City and it is a natural inference that he purchased the bonds here. If so, neither he nor his executors acquired any right to claim damages for the receivers’ tort to his predecessor in title.1 If he acquired them outside the State of New York and in a state where the seller’s tort claim would pass without a special assignment of the claim, it devolved upon his executors to make proof of that fact in order to show their right to object to the receivers’ final accounting. They offered no such proof. The district court held that they were “without standing to object to the final report and accounting.” This conclusion was right, whether or not we agree with the reasoning by which the district judge reached it. Accordingly I think the orders should be affirmed.

 The majority opinion suggests that because this is a federal receivership we may hold that Cohen’s purchase of the bonds, even if the transfer occurred in New York, passed to him the seller’s tort claim against the receivers. This seems to me in direct conflict with the rule of Erie R. Co. v. Tompkins.