In re Rosenstein

MANTON, Circuit Judge. A voluntary petition in bankruptcy was filed by the bankrupt on December 31, 1920, and there was an adjudication in bankruptcy on the same day. The firm of Eederer & Win-corn on October 25, 1920, instituted an action in the state Supreme Court against the bankrupt for the recovery of $2,165.85, based upon a trade acceptance which was accepted by the bankrupt and was dishonored at maturity. A writ of attachment against the property of the bankrupt was issued in the state Supreme Court. On October 30,1920, the property so attached was released upon the filing of an undertaking executed by the Maryland Surety Company wherein and whereby it undertook and covenanted to pay any judgment not exceeding $2,-500, which the plaintiffs in the Supreme Court action may recover. On the day of tire adjudication in bankruptcy, the District Court entered an order staying the entiy of judgment in the Supreme Court action to 12 months after December 31, 1920, unless the bankrupt should previous to that time apply for a discharge, and in that event until the question of such discharge should be determined. On the 21st of March, 1921, on an affidavit of one of the plaintiffs in the Supreme Court actionyand upon notice to. the bankrupt and the attorneys for the trustee, an order was entered vacating the stay in the action in the state Supreme Court. This order vacating such stay [705] recites that the attorneys for the trustee consented in open court to the granting of the motion, but the attorneys for the bankrupt opposed it. When the bond of indemnity was issued and approved, no deposit as collateral security was made by the bankrupt, nor has any collateral been deposited with the Maryland Surety Company. The petitioner makes no claim that the Maryland Surety Company has in its possession any property belonging to the bankrupt or that it has any collateral for this undertaking. The petition for the vacation of the stay prayed that judgment might be entered to compel the payment by fhe Maryland Surety Company, and it is alleged that payment by it will in no wise prejudice the bankrupt or the estate of the bankrupt. It also appears that the undertaking of the Maryland Surety Company does not require the issuance of execution against the bankrupt and liability is visited upon the casualty company upon the mere entry of the judgment. It thus appears that no prejudice is created against the bankrupt’s estate, nor will loss be sustained by it, if a judgment be recovered against the Maryland Surety Company. Plaintiff, in the suit in the state court, has the right to proceed to judgment in that court, and may collect on the judgment against the surety. The question of whether a prejudice is thus created against.the bankrupt’s estate, or loss will be sustained by it, is a question to be determined by the bankruptcy court, and not by the state court; but the state court has full cognizance of the action to the entry of judgment against the surety company. Jaquith v. Rowley, 188 U. S. 620, 23 Sup. Ct. 369, 47 L. Ed. 620; Eyster v. Gaff, 91 U. S. 521, 23 L. Ed. 403. The trustee of this bankrupt has no interest whatever in the claim against the surety company. The creditors’ rights and equities are questions which should be disposed of by the state court. In re Mercedes Import Co., 166 Fed. 427, 92 C. C. A. 179. Where 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, the judgment of that court, refusing leave to the bankrupt defendant to file a plea setting up his discharge, was affirmed by the Supreme Court in Hill v, Harding, 130 U. S. 699, 9 Sup. Ct. 725, 32 L. Ed. 1083. The state court has refused to let the bankrupt amend his answer, so as to set up his 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 also subsequently refused to vacate the attachment, although the levy was made within four months of the filing of the petition. This wa.s done in order to give an opportunity to the creditor to recover against the sureties. King v. Block Co., 125 App. Div. 922, 109 N. Y. Supp. 1151; 126 App. Div. 48, 111 N. Y Supp. 102, affirmed 193 N. Y. 608, 86 N. E. 1126. Section 11 of the Bankruptcy Act (Comp. St. §‘ 9595) is not mandatory, and does not require the District Judge to grant a stay. It is permissive only, and is therefore addressed to the wise discretion of the District Judge. It appearing that the estate of the bankrupt will not be affected, either by property being taken therefrom, or the estate [706] enhanced by the entry of judgment in the Supreme (state) Court action, we hold the District Court properly exercised its discretion in vacating the stay. Order affirmed.