In re Mercedes Import Co.

WARD, Circuit Judge. In the year 1906 Smith & Mabley, Incorporated, brought suits against the Mercedes Import Company, both in New York and New Jersey, taking out an attachment on property of defendant in the latter state. The parties subsequently stipulated that these actions should be discontinued and one action brought in New York to cover all claims, in which the Mercedes Company should give the Smith Company a bond conditioned for the payment of any judgment it might recover. November 7, 1906, this new action was [429] begun in the Supreme Court of the state of New York. On November 9th the bond was given, and subsequently the issues were sent to a referee, where they are still pending. March 26, 1908, the Mercedes Company was adjudicated a bankrupt. May 13, 1908, the district judge on the motion of the trustee in bankruptcy made an order staying the proceedings in the action pending in the state court until 12 months after the adjudication, or until the determination of the question of the bankrupt’s discharge, if sooner made. This is a petition to revise that orden. The district judge was not obliged to grant the stay under section 11 of the bankruptcy act, but did so because he thought that the creditor had no better equity against the surety than he had against the bankrupt. As the trustee in bankruptcy has no interest whatever in the claim against the surety, we think the creditor’s rights and equities are questions to be disposed of by the state court. Judge Addison Brown, in Re Rosenthal (D. C.) 108 Fed. 368, vacated a stay restraining the prosecution of a suit against the bankrupt in Massachusetts because under a statute of that state a special judgment might he entered against the bankrupt, so as to fulfill the condition of the bond and enable the creditor to enforce it against the surety. And in Hill v. Harding, 130 U. S. 699, 9 Sup. Ct. 725, 32 L. Ed. 1083, the Supreme Court held that, as the practice of the state court permitted a special judgment to be entered against the bankrupt with a perpetual stay of execution, to enable the creditor to recover against the sureties, a judgment of that court refusing leave to the bankrupt defendant to file a plea setting up his discharge should be affirmed. We have therefore to consider what is the practice of the courts of the state of New York on the subject, because there seems to be no statute. In King v. Block Co., 125 App. Div. 922, 109 N. Y. Supp. 1151, the court refused to let the bankrupt defendant amend its answer, so as to set up its discharge and thus prevent the plaintiff from obtaining a judgment on which to enforce the liability of the surety on a bond to dissolve an attachment, and in the same case (126 App. Div. 18, 111 N. Y. Supp. 102) subsequently refused to vacate the attachment (although levied within four months of the filing of the petition) in order to give the creditor an opportunity to recover against the sureties. We think the court in which the action is pending should he left free to take whatever steps it thinks equitable in the premises in accordance with its own practice, and the order granting the stay is therefore reversed.