In re Henry Siegel Co.

MORTON, District Judge. The questions certified involve two petitions. In each the petitioners are the trustees of the Department Store Trust. As such trustees, they leased the store occupied by the bankrupt to Siegel & Vogel, by whom the lease was duly assigned to the bankrupt. The rent was about $300,000 per year.. Subsequent to the bankruptcy the lessors retook possession of the property and leased it to other persons at a reduced rental. The first dividend, 10 per cent., was declared on March 21, 1914, and was duly paid. On March 31, 1914, counsel for the petitioners wrote to the referee that the petitioners had a claim for damages on account of the failure of the bankrupt to carry through the original lease “in the sum of $1,000,000.” This letter was not sworn to and was in no sense a proof of claim. A few days before April 27, 1914, the referee informed counsel for the petitioners that another dividend would shortly be declared, and understood that the counsel for the petitioners said that the claim would probably be about $750,000. No proof of it was promptly filed, and on the 27th of April the referee declared a second dividend of, 10 per cent, on claims then proved and allowed. Notices [947] of the declaration of this dividend were sent to creditors immediately after it had been declared. On May 5th the first of these petitions was filed, which was subsequently amended, praying, in substance, that the referee would revoke the dividend order to allow the petitioners to file their proof of claim. On the next day they filed a proof of claim in the sum of $1,920,350.43 for damages which they claim to have suffered by reason of the bankrupt’s failure to carry through the original lease. On the next day, May 7th, they filed the second of the petitions now before the court, praying, in effect, that the trustee in bankruptcy be directed to take a review of the dividend order, or that the petitioners themselves be authorized to take a review of that order in the name of said trustees. The ref.eree declined to revoke or stay the dividend ordered, or to allow a review of the dividend order, and denied both petitions. The petitioners thereupon brought these proceedings to review his decisions. No defect or insufficiency in the formality of the proceedings before the referee is alleged. Two principal questions are presented: (1) Whether the referee was right in refusing to direct the trastees to take a review of the order declaring a dividend, or to allow the petitioners to take such review in the name of the trustees. (2) Whether the referee was right in refusing to stay and revoke the dividend in order to give the petitioners an opportunity to prove their claim, so that it could, if allowed, participate in the dividend. [1] As to (1). The dividend order was right at the time when it was made. The claim in question was not scheduled; it had not been proved; no information whatever had reached the referee that it would be over $1,000,000. He reports that he has reserved sufficient assets to pay both dividends on that amount. The petitioners deny this. The matter is one as to which the judgment ofj the referee under whose immediate control the estate is being administered, and who is familiar with the property, is entitled to much weight. I cannot say upon the record before me that he erred on this point. Upon the facts stated in his certificate, he appears, in declaring the second dividend, to have acted with all due consideration for the petitioners’ rights. As the correctness of the dividend order is, of course, to be determined with reference to the time when it was made, not by what occurred thereafter, a review of it.would not have brought before the court the subsequent proof of claim, and would plainly have been a futile proceeding. It therefore seems to me that the referee was right in refusing to direct or permit review of the dividend order in the name of the trustees. [2] As to (2). Whether the dividend order, which was right when made, should be revoked, and the case reopened upon that point, was a matter which lay within the discretion of the referee, to the exercise of which no review lies, except so far as it proceeded upon erroneous principles of law. For somewhat analogous questions under Massachusetts practice, see Buswell v. Walcott, Mass. Practice, p. 119, et seq.; Fuller’s Mass. Probate Law (3d Ed., by Alger) pp. 475 and 476. In denying the petition the referee may well have found that the petitioners had not been diligent in proving their claim, that the allowance of the petition meant litigation and long delay before the second dividend [948] could probably be paid, that sufficient assets had been reserved to protect the petitioners’ claim to the amount originally stated, that the claim proved was over $900,000 in excess of that amount, and that it apparently rested upon principles of law which had been declared unsound by the Court of Appeals for this circuit. He may, not unreasonably, have suspected that such a large and late claim was made by the petitioners in the hope that the trustees in bankruptcy would see fit to compromise it, rather than to delay the settlement of the estate until the matter could be decided in the courts. I certainly do not think such views of the case were so erroneous and unfounded that' action based upon them amounted to an abuse of judicial discretion. The referee was bound to exercise his discretion upon correct principles of law. His opinion that the petitioners’ claim was unfounded in law and was fully met by Slocum v. Soliday, 25 Am. Bankr. Rep. 460, 183 Fed. 410, 106 C. C. A. 56, decided by the Court of Appeals for this circuit, entered so fundamentally into his decision upon this petition that if he is in error concerning it, his discretion was improperly exercised and his action ought to be reversed. Richardson v. Lloyd, 99 Mass. 475. It seems to me, however, that in so holding the referee was right, and that the petitioners’ claim is met and covered by the case just referred to. There is the possibility that the referee was mistaken upon that point, and the further possibilities that Slocum v. Soliday may be overruled, or that the law may be declared otherwise by the Supreme Court of the United States. Neither of these contingencies seems to me sufficiently probable to justify me in holding that the referee abused his discretion in disregarding them. The payment of, the second dividend will so reduce the assets of the estate that, in all probability, not enough will remain to pay both dividends on the petitioners’ claim if it should hereafter be allowed for the full amount of $1,920,350.43. Money once paid out as dividends cannot be recovered from the creditors who receive it. Bankruptcy Act, § 65c. So that the referee’s refusal to revoke and reopen the dividend amounts to a final judgment against the petitioners possibly involving a large sum of money. In view of these facts, the petitioners ought to be allowed to submit the questions raised by these proceedings to the Court of Appeals, and the dividend ought not to be paid out until there has been an opportunity for the petitioners to take a review or appeal from this decision. The orders of the referee denying both petitions are affirmed. The dividend declared is not to be paid within ten days from the date hereof. If, within that time the petitioners take and perfect a review or an appeal from this decision, the dividend declared is not to be paid out while said review or appeal is pending, and is being prosecuted by them with all possible diligence and dispatch.