Platt v. Archer

BLATCHFORD, District Judge. On the 13th of October, 1871, the supreme court of New York, in a suit brought by William R. Barr against the Stuyvesant Bank, and on a verified complaint and sundry affidavits therein, made an order restraining the bank from exercising any of its corporate franchises, and from collecting or transferring any of its moneys or property, until the further order of the court, and appointing the defendant in this suit to be receiver of its property. Such suit was commenced on the 12th of October. The gravamen of the complaint was, that the bank was insolvent and unable to pay its debts. The bank appeared in the suit by attorney, on the 12th of October, and its counsel consented, in open court, to the making of the order of the 13th of October. On the 13th of November, the supreme court, in a suit brought by the people of the state of New York against the bank, and on a summons, a complaint, affidavits, and due notice, counsel for the bank appearing and opposing, made an order enjoining the bank from exercising any of its corporate franchises, and from collecting or transferring any of its moneys or property, and appointing the defendant in this suit to be receiver of its property. The complaint set forth the insolvency of the bank. On the 23d of November, no answer or demurrer having been put in, in the suit brought by Barr, a judgment was entered therein, awarding a perpetual injunction against the bank, and appointing the cefendant in this suit to be its receiver, but not dissolving the corporation. On the 23d of December, John Mack filed, in the district court of the United States for this district, a petition in involuntary bankruptcy against the bank, setting forth, as one of the acts of bankruptcy, the procuring and suffering its property to be taken on legal process by the defendant in this suit, as receiver, with intent to defeat the operation of the bankruptcy act. On the filing of the petition, an order to show cause, returnable on the 6th of January, 1S72. was, on the 23d of December, issued. The order directed that a copy of the petition, and of the order, should be served on the president of the bank. On the 27th of December, an answer of the bank, in the suit brought by the people, denying, on information and belief, its insolvency, was sworn to by John Tan Orden, who, in the affidavit, says, that he “is cashier of the Stuyvesant Bank.” This answer was subsequently put in in the suit. On the 28th of December, on an affidavit of the absence of'the president of the bank, and that Van Orden was cashier, an order was made by the district court, that a copy of the petition, and of the order to show cause, be served on the bank, by serving it on Van Or-den, its cashier. Such service was made on Van Orden on the 23th of December. On the 29th of December, in the suit brought by the people, judgment on the answer as frivolous was given against the bank,- and it was adjudged that the charter of the bank “is declared to be forfeited, and the said corporation, composing the said bank, is hereby dissolved,” and that the defendant in this suit be continued as receiver, and be appointed receiver of all the property of - the bank, and that the bank be enjoined from collecting any debts, and transferring any money or property, and from transacting any business whatever. On the 6th of January, 1S72, on proof of such service of a copy of the petition and order to show cause on the cashier of the bank, no one appearing in opposition, and the bank being called in open court, and making default in appearing pursuant to the order to show cause, the usual order of adjudication was made by the district court, setting forth, that, on consideration of the proofs, it was found that the facts set forth in the petition were true, and adjudging that the bank became bankrupt, within the true intent and meaning of the bankruptcy act, before the filing of said petition, and declaring and adjudging it bankrupt accordingly, and referring it to a register to take the proceedings required by the act. At the first meeting of the creditors of the bankrupt, held, in pursuance of the warrant issued to the marshal, for the choice of as-signee, it was resolved, by three-fourths in value of the creditors whose claims had been proved, that it was for the general interest of the creditors of the bankrupt that the estate of the bankrupt should be wound up and settled, and distribution made among the creditors, by trustees, under the inspection and direction of a committee of creditors, and that the defendant in this suit be nominated as trustee, to take, hold, and distribute said estate; and that Richard Kelly, the Reverend [831] John Orcutt, and Richard H. Bull, president of the New York Savings Bank, he the committee of creditors, under whose direction the said trustee should act. This resolution was duly certified to the district court by the register. The register also certified, that the first meeting of creditors was convened on the 7th of February, and was finally closed on the 13th of February; that, at the meeting, votes were cast for assignee, the names of the voters, and the amounts of the debts on which they voted, and the name of the person for whom such votes were cast, being returned, and such person not being the defendant herein; that there was an opposing interest to the appointment of an assignee by the register, in the action of the creditors in nominating-a trustee; that no choice of as-signee was made by the creditors; and that the register had made no appointment of as-signee, believing that such action of the creditors was such an opposing interest as would render his appointing one irregular and void. On the 16th of March, the defendant in this suit, on notice and on affidavits, applied to the district court for the confirmation of the action of the creditors, in respect to a trustee and a committee. This motion was opposed on affidavits, and, by an order made on the 22d of March, the court denied the motion, and appointed the plaintiff in this suit to be assignee of the estate and effects of the bankrupt. [Case No. 13,581.] From the decision rendered by the district judge, it appears that he. was of opinion, on the papers before him, that the interests of the creditors would not be promoted by the appointment of the defendant in this suit as trustee, and that, therefore, he declined to confirm such resolution. The principal ground stated for this conclusion was, that, as the appointment of the defendant in this suit as receiver by the state court was one of the grounds on which the bank was adjudged bankrupt, and he still continued to be such receiver, and claimed to hold, as such receiver, what remained in his hands of the property of the bank which had passed to him, and had been dealing with the rest as such receiver, and, if he was to account for it at all to the district court, must account for it as of the day the petition in bankruptcy was filed, and to a trustee or as-signee to be appointed by the district court, and, as it appeared that he did not intend to voluntarily surrender to any trustee or as-signee to be appointed by the district court, the property still in his possession, and did not intend, if confirmed as trustee by the district court, to cease acting as receiver, but announced his intention to act both as receiver and as trustee, and to have his acts authorized by the state court, and by the district court, it was not proper that he should, as trustee, be plaintiff, and, as receiver, be defendant, in respect to the matters involved, and he could not be allowed to occupy the incompatible position of being a trustee under the bankruptcy act, and looking to the state court as partly the source of his authority, or of holding the property as receiver, under the state laws, and administering it under the authority or direction of the district court. It further appears, from the decision of the district judge, that he regarded it as an objection to confirming the proceedings, that , the bank of which Mr. Bull, one of the three persons named as the committee of creditors, was president, claimed, by its proof of debt, to be entitled to a preference under the statutes of New York, and to be paid in full, in priority to others, in a distribution of the assets under the bankruptcy act, and that such claim of preference was contested by creditors who were unsecured, and who claimed no preference. The view of thegjudge was, that the creditors had undertaken to select a committee consisting of three persons, and had thus expressed their desire that the committee should consist of three persons; that their action under the statute was a unit, and their resolution must be confirmed as a whole, or not at all; and that it was improper that Mr. Bull should be one of the committee, under whose direction the estate of the bankrupt was to be wound up and settled. The judge regarded the case as having arisen where, under section 13 of the act, it became the duty of the court to appoint an assignee, the resolution nominating a trustee not being confirmed, and no choice of an assignee having been made by the creditors. An assignment, in due form, under the act, was executed by the district judge to the plaintiff in this suit on the 22d of March, of all the estate which the bankrupt had on the 23d of December, 1871. On the 23d of March, the defendant in this suit and Bull and Or-cutt filed in this court a petition praying for a review and reversal of the order of adjudication made by the distinct court, and of the order refusing to confirm the nomination of a trustee and a committee, and appointing the plaintiff in this suit to be assignee. The petition of review sets forth, as objections to the orders: (1) That the district court had no jurisdiction over the bankrupt, it having been dissolved by a judgment of a competent court before the adjudication; (2) that it had no jurisdiction over the assets of the bankrupt, they having become vested in a receiver duly appointed by the state court If it should be held that the district court had such jurisdiction, then it is objected, by the petition, to the order of the 22d of March, that it refused (1) to confirm the resolution nominating the defendant in this suit as trustee; (2) to confirm the resolution nominating the three persons as a committee; (3) to confirm at least two of the committee. If it should be held that the district court had such jurisdiction, and that it was proper for the district judge to refuse to confirm as aforesaid, then it is objected, by the petition, to the order of the 22d of March (1) that it appoints the plaintiff in this suit assignee, when less than one-tenth of all the creditors who had proved their [832] claims had voted for him, while more than nine-tenths had voted for the appointment of a trustee; (2) that the appointment of such assignee was not authorized by law, it having been the duty of the court to direct the bankruptcy to proceed as though no resolution had been passed, and to make all necessary orders for resuming the proceedings, and thereupon to direct that all further proceedings (if any proceedings whatever were, un•der the circumstances, valid) be remitted to said register, and that an election of a new trustee or an assignee thereupon take place. This petition of review has not yet been brought to hearing before this court. On the 25th of April the plaintiff in this suit obtained an order from the state court, granting him leave to bring this suit. The bill in this suit sets out that, on the 13th of October, 1S71, the Stuyvesant Bank was a corporation created by the state of New York, and was insolvent; that it was adjudged a bankrupt by the proceedings before mentioned; that, within four months before the filing of the petition against it, it, being insolvent, made a transfer of its property to the defendant, who then had reasonable cause to believe it to be insolvent, within the 35th section of the bankruptcy act, the transfer being made by means of the order made on that day in the suit brought by Barr; that the defendant had reasonable cause to believe the bank to be insolvent, and that the transfer was made in fraud of the provisions of said act, and with a view to prevent the property of the bank from coming into the possession of its assignee in bankruptcy, and to prevent it from being distributed under said act, and to •defeat the object of, and impair, hinder, impede and delay, the operation and effect of, and evade the provisions of, said act; that the transfer -was not made in the usual and •ordinary course of business of the bank; that, on the said 13th of October, the bank, being insolvent, did, with intent, by such disposition of its property, to defeat and delay the operation of said act, and with intent to delay, defraud and hinder its creditors, transfer its property to the defendant in this suit, and procure and suffer its property to be taken by him on legal process; that such legal process consisted in the orders and judgments of the state court, before referred to; that the trust created by said legal processes, and transfer, .and appointment of the defendant as receiver, was a trust created in fraud of the creditors of the bankrupt, and the property affected thereby was conveyed by the bankrupt to the -defendant in fraud of its creditors, within the meaning of the 14th Section of the bankrupt-, cy act, and the transfer was void within the meaning of the 35th section, and the legal process was void within the meaning of the 39th section, and the defendant had reasonable cause to believe that a fraud on the act was intended, and that the said debtor was insolvent ; that the defendant has', on demand, refused to give to the plaintiff (whose title is set out) an account and the possession of such property, and claims a title and interest adverse to the plaintiff touching said property;that such property consisted of real, personal and mixed property; that a large proportion of it consisted of claims and choses in action against persons who were indebted to the bankrupt at the time such orders were made by the state court; and that, to reduce the same to the possession of the plaintiff by actions at law, or to compel the defendant to respond for the value of the property in actions at law, would require a large number of suits, and a discovery and an accounting by the defendant. The bill prays that said transfer may be decreed to be void as against the plaintiff, and that the said legal processes may be adjudged to be, as against the plain-tiff, void, and that the property affected thereby may be adjudged to be vested in the plaintiff, and that the defendant may account for the same, and for the disposition made by him of the same, and of the proceeds thereof, and deliver to the plaintiff so much of such property as remains in his hands, and the proceeds of such of it as he shall have disposed of, and that he be enjoined from disposing of or interfering with said property, and from setting up and asserting, as against the plaintiff, any title to, or right of action for, any of said property, and that, pending this action, and by final decree, he may be enjoined from doing any act to carry out or effectuate the trusts purporting to be created by his appointment as receiver, or from distributing the property affected by such receivership, otherwise than by the permission and direction of this court, and that, pending this action, and by final decree, a receiver of the property transferred to him, or in his possession, and of its proceeds, may be appointed, with- the usual powers of a receiver in like cases. The plaintiff now moves, on notice, for an injunction restraining and enjoining the defendant, pending this action, pursuant to the prayer of the bill, and also for the appointment of a receiver, pending this action, pursuant to the prayer of the bill. It is claimed that the district court had no jurisdiction to adjudge the bank a bankrupt, because the petition and the order to show cause were not served on any one who did or could represent the bank, and that Van Orden was not, at the time of the service, the cashier of the bank. This allegation is made on the ground that, on the 13th of October, Van Orden gave up to the defendant the keys of the bank, and became his clerk, on a salary, and ceased to act as cashier, and did not act as cashier from that time prior to the judgment of dissolution. But there was nothing in this which displaced Van Orden from his official relation to the corporation as cashier, as is also apparent from his own oath on the 27th of December, that he was then cashier. The corporation was in being on the 28th of December, when the papers were served on Van Orden, and he was still its cashier for the [833] purpose of being served, as its proper representative, with such papers. If, at any time prior to the judgment of dissolution, the state court had discharged the receivership, and directed the property of the corporation to be restored to its officers, Van Orden would have been a proper officer, as its cashier, to receive the property, without any new appointment of him as such. It is also objected, that the bank had no existence when the adjudication was made. But we cannot admit it to be a tenable proposition, that a corporation, subject to the provisions of the bankruptcy act, and which has committed an act of bankruptcy, and is in existence when the petition against it is filed, and when the proper papers are served on its proper officer, can oust the jurisdiction of the bankruptcy court to proceed, on the return day, to an adjudication of bankruptcy, because a decree dissolving the corporation has been made after such service and before such return day. The papers having been properly served on an officer of the bank, while the bank was in being, and the bank being called and making default to ai>pear, the order of adjudication is substantially a proceeding in rem, and not one in personam, the order being, that, the facts in the petition being' found to be true, it is adjudged that the bank became bankrupt before the filing of the petition, and is accordingly adjudged bankrupt. The judgment is, that the bank became bank-nipt before the filing of the petition, by having committed the acts of bankruptcy set forth in. the petition, and which it committed while it was-in being, and that it is adjudged bankrupt in respect of the administration of its property subject to the act, by reason of so having committed such acts of bankruptcy. Independently of this view, no doctrine can be admitted which would place it in the power of a state, or of the courts of a state, to render nugatory the operation of the act in respect to such corporations as are subject to it. To concede that what was done in the present case operated to deprive this court of the jurisdiction which attached by the filing of the petition and the service of the order to show cause, would be to- concede that the legislature of the state might lawfully provide, by a statute to be carried into effect by proceedings in its courts, that the institution of proceedings in bankruptcy against an insolvent corporation, and the service of an order to show cause on its officers, should operate to dissolve the corporation, to be followed, as a consequence, by a defeat of the jurisdiction of the bankruptcy court. The authority of congress to pass the bankruptcy act is paramount and exclusive, and so is the Jurisdiction of the district court thereunder. The 39th section of the act provides, that the debtor who commits any of the acts specified in that section shall be deemed to have committed an act of bankruptcy, and, subject to the conditions thereinafter prescribed, shall be adjudged a bankrupt. It is not one of those conditions that a corporation debtor, if in being when the petition is filed and the order to show cause is served, shall continue undissolved until after the adjudication. As respects a corporation proceeded against involuntarily, the proceeding is eminently one in rem against its property, as it cannot be discharged from its debts, nor can its members be discharged from their liability as such for its debts, and the proceeding is one solely for the distribution of its assets among its creditors. The prayer of the petition in this case, according to the form prescribed, was, that the corporation might be declared a bankrupt, and that a warrant might be issued to take possession of its estate, and that the same might be distributed according to law. Although the assignment to the assignee relates back to the commencement of the proceedings in bankruptcy, as declared by the 14th section, yet, by the 14th, the 35th and the 39th sections, the assignee is vested with the-title to recover, as assets of the bankrupt, property conveyed or transferred by or out of the bankrupt, in fraud of his creditors, or in fraud of the act, before the filing of the petition in bankruptcy. We are entirely satis-' fled that the dissolution of the corporation in the present case had no effect to deprive the district court of its jurisdiction. The suggestion that judgment was pronounced against the corporation without giving it an opportunity of being heard, is answered by the considerations already adverted to. The corporation had all the opportunity of being heard which the district court could or was bound to afford to it. Regarding the proceeding as one in rem, there is nothing in the record of the proceedings in the district court to show that the receiver, as claimant of the property, desired to be heard as presenting the corporation and such property, and was refused a hearing. In the case of In re Independent Ins. Co. [Cases Nos. 7,017 and 7,018], receivers of a dissolved state corporation were admitted to file a plea to the jurisdiction of the bankruptcy court, and such plea was heard on the merits and overruled. In the present case, the order of adjudication recites that no one appeared in opposition, and that the bank was called in open court, and came not, but made default to appear. If the receiver had appeared and asked, as representing the bank and its property, to be heard by answering the petition, and been refused leave to do so, a different question would be presented. Nor do we perceive any force in the position, as applied to this proceeding in bankruptcy, that it abated by the dissolution of the corporation, so as to be incapable of being proceeded with thereafter. The views we have already announced involve the kindred conclusion, that the proceeding did not abate. On the undisputed facts in this case, the plaintiff is entitled to the relief he seeks on this motion. In regard to the points raised [834] by tiie petition of review respecting tlie action of the district court in not confirming the resolution of the creditors nominating a trustee and a committee, and in appointing the plaintiff to be assignee, the petition has not been heard before this court, but, in view of the suggestion by the defendant, that his claim of title, as trustee, and the claim of title by the plaintiff, as assignee, ought not to be decided until the action of this court on the petition, we have considered those points sufficiently to be able to say, that we do not perceive in them anything which ought to constrain us to refrain from granting to the plaintiff any relief which we should otherwise deem it proper to grant. [For hearing on exceptions to master’s report, see Case No. 11,214.] It is proper that the injunction asked for should issue, and that the plaintiff should be appointed receiver, he stipulating to charge no commissions on such assets of his receivership as shall pass therefrom to the trust represented by the assignee of the bankrupt.