Court Opinion

ID: 8819357
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:27:48.15981+00
Date Added: 2024-06-11T17:04:34.953278
License: Public Domain

ROSS, Circuit Judge
(dissenting). These cases have been argued and submitted together; one being a petition for the revision of proceedings in bankruptcy, and the other an appeal from the decrees of the court — the complaining party, a corporation styled Oregon Filers Music House, being uncertain regarding its true remedy. In such circumstances, that it was justified in resorting to both appeal and petition to bring up for review the rulings of which it complains is well *926settled. Chavelle v. Washington Trust Co., 226 Fed. 400, 141 C. C. A. 230, and cases there cited.
The record shows that the bankrupt, a corporation called Filers Music House, was adjudged bankrupt by the court below in the year 1918. April 30, 1919, the trustee filed and presented to the court a very voluminous petition, verified upon his “belief,” by which he asked the court for an order requiring the corporation known as the Oregon Eilers Music House to turn over to him as such trustee a large amount of property that the petitioner alleged belonged to the bankrupt.
Among other things, the petition alleged that in February, 1908, a corporation known as the Eilers Piano House acquired by purchase the property and business of a corporation doing business under the name of Graves & Co., taking the capital stock thereof in the names of the officers and directors of the Eilers Piano House, but in trust for that corporation, such stock havjng been paid for by its funds; that in April, 1910, the bankrupt corporation was organized, and that a few days thereafter the Eilers Piano House conveyed to it all of the property in question, in consideration of which the Eilers Music House assumed and agreed to pay all the debts and liabilities of the Eilers Piano House, but that in pursuance of a scheme of the officers of those two corporations, and for the purpose of preventing the property of Graves & Co. from passing to the Eilers Music House, they caused Graves & Co. to be reorganized into another corporation known as the Oregon Eilers Music House, under which name the latter proceeded to do business, but that in fact it was the agent and representative of the bankrupt corporation and held all of the said property therefor.
An order to show cause having been made and served upon the Oregon Eilers Music House corporation why the order petitioned for^ should not be made, that corporation appeared and filed an answer to the petition, duly verified, in which il first objected to any jurisdiction in the court over it by virtue of any matters set forth in the petition, alleging, among other things, that it was a corporation organized and existing under the laws of Oregon, separate and distinct from the Eilers Music House corporation, and alleging that the Oregon Eil-ers Music House corporation is the Graves Music Company, Incorporated, and was organized and in existence years prior to the organization of the bankrupt corporation, and that the latter is a minority stockholder in the Oregon Eilers Music House corporation, and a debtor thereto, and further that the Oregon Eders Music House corporation has no property or assets belonging to the bankrupt, and asking that the petition be dismissed.
The answer also put in issue many of the allegations contained in the petition, denying, among other things, the allegation that the Oregon Eilers Music House corporation is a constituent or subsidiary part of the business of the bankrupt corporation, or an agency thereof. The answer admitted that the petitioner, as trustee of the bankrupt corporation, has and holds 457 shares, of the par value of $45,700, of the capital stock of the Oregon Eilers Music House corporation, and as affirmative matter the answer alleged that long prior to Febru*927ary, 1908, there was a corporation of Oregon incorporated and existing under the name of Graves & Co., Incorporated, and that on the 8th of that month and year the stock of that company was bought by the Eilers Piano House corporation, organized in December, 1901, under the laws of the same state, which stock was so bought for the purpose of selling it to certain individuals, which was done, they paying therefor, and that thereafter the Eilers Piano House corporation had no interest in the stock of Graves & Co., Incorporated; that the Eilers Music House corporation was not incorporated until 1910. and never had any interest in Graves & Co., Incorporated, which corporate name was thereafter changed to Graves Music Company, until in 1916 the Eilers Music House corporation, then a solvent and going concern, sold its Portland retail business, good will, and certain personal property to the Graves Music Company for $45,000 of the stock of that company and caused the Graves Music Company to change its name to Oregon Eilers Music House, and caused the latter to move part of its business to the building at Broadway and Alder streets leased by the Eilers Music House, taking a sublease from the latter of a part of the building, which transaction was all consummated in good faith and for value in 1916, long before the bankruptcy of the Eilers Music House corporation; that the only interest the latter has in the Oregon Eilers Music House corporation is that oí a minority stockholder owning $45,700 of its capital stock, and that it is a debtor to the Oregon Filers Music House corporation to the extent of $31,764.59 for merchandise and cash delivered by the latter to the Filers Music House corporation at its special instance and request prior to its being adjudged a bankrupt; that the two last-mentioned corporations had mutual dealings as separate and distinct corporations, and that on March 12, 1919, the Oregon Filers Music House corporation duly presented and proved its claim in the bankruptcy proceedings against the Filers Music House corporation for $31,764.59, and also has pending certain other claims against the bankrupt for certain property; that when the receiver of the bankrupt was appointed he was given full information regarding the organization and business of the Oregon Eilers Music House corporation and given access to its books and records. The prayer of the answer was that the petition be denied and dismissed, with costs against the petitioner.
The view taken by the court below is best shown by this excerpt from its opinion fded June 21, 1919:
“The only question, I take it, in the case, is whether the court lias jurisdiction, based upon the allegations of the petition, If true, to make an order summarily requiring the defendant corporation to turn over property in its possession to the bankrupt concern or its trustee, and that depends entirely upon tlie question as to whether the property in fact belonged to the bankrupt at the time the petition in bankruptcy was filed. The bankruptcy court has jurisdiction in a summary proceeding to require a bankrupt or any agent or representative of tlie bankrupt in possession of its property, to turn it over to the trustee; but it has no jurisdiction In such a proceeding to determine a bona fide dispute as to the title to property not in the possession of the bankrupt at the Lime the petition is filed, and which is claimed by an adverse party.
*928“This case presents that issue as a question of fact, and I do not know any way it can be determined until there is some evidence in reference to the matter. If the allegations of the petition are true, then this property would seem to belong to the bankrupt and should be turned over to it. If the denials in the answer are true, and the affirmative matter set up correctly portrays the facts, then the court has no jurisdiction, but the remedy of the trustee is a plenary suit or in some other proceedings.
“So I take it this motion should be overruled, and the matter come to hearing upon the averments of the petition and the denial and affirmative matter set up in the answer. In view of the necessity of a prompt disposition of this matter, as should be the case in all bankruptcy proceedings, an order will be made referring it to the referee in bankruptcy as a special master, to examine into the question and report.”
Upon the reference to the special master a large amount of evidence, oral and documentary, was introduced, resulting in voluminous findings by him, with the recommendation that an order be entered “directing the officers and directors of Oregon Eilers Music House to surrender the assets now in their possession to the trustee of Eilers Music House for administration according to law,” to which numerous exceptions were taken, considered by the court below, and overruled, and the recommendations of the master embodied in the decree of the court.
I think the court was in error in undertaking to determine the issues between the contesting parties as one of the incidents of the bankruptcy proceedings before it, and am clearly of the opinion that the Oregon Eilers Music House corporation was entitled to have those issues tried and determined in an independent suit. The case of Looschen Land & Building Co. et al. v. Milson, In re Looschen Piano Case Co., decided by the Circuit Court of Appeals for the Third Circuit July 3, 1920, is, I think, directly in point. 266 Fed. 359.
In the case of Mueller v. Nugent, 184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405, it was not denied that the property in question belonged to the bankrupt, but the proposition was (see pages 13, 14, 15) that as matter of law, the property having come into the hands of a third party as agent of the bankrupt before the filing of the petition in bankruptcy, the bankruptcy court had no power by summary proceedings to compel its surrender to the trustee, even though the agent asserted no adverse claim to it. The court held against the contention, and sustained the power of the bankruptcy court to take the property by summary process. It is manifest that that case is entirely different from the present one.
As in effect said in the excerpt from the opinion of the court below above quoted, undoubtedly, if the facts set up in t)ie answer of the Oregon Eilers Music House corporation be true, the property in dispute could not be summarily taken from it and turned over to the estate of the bankrupt. And it being equally clear that no court could be justified in assuming that the facts so alleged and sworn to were not true, the necessary conclusion is, I think, that the party in possession of the property in good faith claiming to own it, as was the case here, was and is entitled to hold it until its alleged right thereto should be adversely determined in a plenary suit. Otherwise, in eyery such case, where the representative of the bankrupt claims the property, *929the bankruptcy court has exclusive jurisdiction to decide the question of ownership in a summary way.
.These views find some support in the following observations of the learned judge of the court below, in confirming the master’s report and decreeing the delivery of the property to the trustee of the bankrupt:
“Upon the issues thus joined the case was referred to the special master who, after exhaustive and elaborate hearing, filed a report in which he detailed the facts as he understands them and reaches the conclusion that the assets of the Oregon Eilers were in truth aiifl in fact a part of the assets of the bankrupt’s estate, and recommends that an order bo entered requiring that they be turned over to the trustee. I have read this testimony time and again; I have examined it in the light of the arguments and briefs, and I am forced to concur in the views of the special master, although I do not agree with some of his findings of fact. He finds that as a matter of fact at the time the stock of Graves & Go. was purchased it was understood it should be done for the use and benefit of the individual stockholders of the Piano House, but I am of the opinion that this was a conclusion not warranted by the testimony. The records of the corporation and the entire transaction are against any such conclusion. The contract entered into for the sale of the stock was made in the name of the Piano House and for its benefit. It was done in pursuance of resolution of the Piano House and was paid for by the Piano House.
“It is true that charges were made on the books against the account of individual stockholders tor a part, if not all, the moneys used in paying the notes of the Piano House, but I am not able to determine whether that was merely a bookkeeping transaction or for some other purpose. The status of the accounts of these respective stockholders does not appear very clear from the testimony. It is in evidence, I believe, that at the time those charges were made there stood upon the books to the account; of these gentlemen individually a credit sufficient to cover these charges, but whether there were any other obligations is not so clearly disclosed. In January, 1014, an audit of the books seems to have been made, at which time it was reported that there were stockholders’ bills receivable outstanding amounting to §202,000. Whether any of this was outstanding- at the time this transfer was made is not apparent. At the time of the bankruptcy, an expert examination of the books disclosed that there was about §400,000 due the corporation from these several stockholders, but I do not take this to be very material.
“Tlie stock was purchased and paid for by the Piano House, it became the property of the Piano House, and the Piano House, as far as the record discloses, never has parted with that stock, and when it transferred its business and assets to the bankrupt, it naturally transferred this stock and the interest therein, together with the other assets. So that on the whole I am of the opinion that the report of the special master must ho confirmed, and an order of that kind will be entered.”
Surely, it seems to me, the party in possession of the property, in good faith claiming to own it, was entitled to have the omissions, doubts, and uncertainties that the court below thus found to exist in the summary proceedings, tried and determined in a plenary suit between the contesting parties.
In my opinion the appeal should be dismissed, with costs thereof against the appellant, and the decrees of the court below of June 21, 1919, and July 20, 1920, should be reversed, with costs to the petitioner, and the cause remanded to the court below for further action in accordance with the views above expressed.