223 F. 912 | 2d Cir. | 1915
Lead Opinion
(after stating the facts as above).
On February 7, 1914, the petitioners herein filed their petitions. against the trustee in bankruptcy, seeking to reclaim as their property certain of the stocks and bonds .turned over to him by the National City Bank. The petitioners allege that, prior to the day when the brokers turned over these various securities to the bank, they had purchased through the brokers the shares of stock they now seek to reclaim, and that they were entitled to the possession of the stocks on the day they were wrongfully given to the bank. They allege they made a demand on the trustee on January 24, 1914, for the return of the shares and all dividends which had been paid on them, and that they at the same time tendered any balance.which might be due from them to the bankrupts, and that the trustee refused to comply with the demand.
It appears, however, that on February 18, 1910, the court entered an order “to show cause why an order should not be made directing claimants and creditors to' file notice of their claims on or before a certain date, or be forever barred from asserting any claims whatever to any right, title, interest, or lien in, to, or on said stocks, bonds, or other securities, or the proceeds thereof, or other assets of the estate.” A copy of this order was mailed in accordance with its terms to all creditors and claimants. Thereafter, and on March 24, 1910, an order was made and entered'which directed certain specified creditors named therein, “and all other claimants, creditors, or other persons” “making any claim to any of the stocks, bonds, securities, or assets of any kind belonging to this estate, or now in the possession of the receiver in bankruptcy, or to the proceeds of any of said stocks, bonds, or securities, to file such claims * * * on or before the 1st day of May, 1910.”
Three of the present petitioners were included by name in the order, Genevieve A. Veddér, Frederick W. Finley, and Robert Flanagan. The remaining four petitioners, it is claimed, were included generally under the designation “of all other- claimants, creditors, or other persons * * * making any claim to any of the stocks, bonds, securities, or assets of any kind.” The order also appointed a special master, who was to hear and determine the rights of all such claimants, and who was directed in all respects to adjust, determine, and adjudicate the rights, titles, interests, equities, claims, and liens of all persons who should file with him any claim or notice of claim to any of the securities, and to report to the court his determination thereon. The order further provided that all claimants who did not file notice of their claims on or before May 1, 1910, should be “forever barred from making any claim or asserting any title or interest in or to any of the stocks, bonds, or securities of this estate or the proceeds thereof, except this order shall not be construed to bar any creditor from his right to file a proof of claim as general creditor against this estate within one year
The District Judge has commented with some severity upon the course which the petitioners have pursued. It did not appear to- him to be a case of candid dealing and fair play. The District Judge stated that what the petitioners did was quite deliberate and conscious:
“They declined to assert any rights at the time fixed; they allowed the trustee to assume that they had no rights, and to assert falsely, though Innocently, that the securities were the property of the bankrupt; * * * they allowed him to employ counsel whose fees would in large measure be determined by the amount of the assets at stake; they took no steps to assert their own claims against the bank, independently, though they had unquestioned right to do so, at least'those claimants whose assets were free; and they lay back, carried wholly a.t the risk of the estate for &%■ years and more, until the trustee brought them safe to port.”
And he adds:
“That this was a shrewd stratagem does not seem to me to admit of the least doubt, in view of the claimants’ total failure to give a scintilla of excuse. They saw the opportunity of using the trustee as their eatspaw to bear all the risk of a doubtful litigation.”
It is fair to say, however, that the case was tried on stipulations as to all material facts, and that the record contains no statement concerning concealment of claims. But the facts which the record discloses show that no notice of the claims was given, and that the trustee was allowed without notice to conduct the litigation without any assistance from these petitioners, who made known to him their asserted rights as soon as the securities reached his hands. The hare stipulated facts do not, however, prove sharp practice. But perhaps it is not altogether surprising that the District Judge inferentially concluded that a. policy of “watchful waiting” had been deliberately adopted by the petitioners, and that such a policy was not proper under the particular circumstances of this case, and that, so thinking, he should have rebuked it.
Counsel rely upon New York Security & Trust Co. v. Lombard Investment Co. (C. C.) 75 Fed. 172 (1896). In that case the trust company liad given the investment company an indemnity fund to guarantee it against loss on all loans made through its advice. This indemnity fund was to be returned to the trust company when the loans were paid. In the insolvency proceeding's an order was entered requiring ail persons “entitled to participate in the general assets of the insolvent” to prove their claims before a certain day. The trust company did not so prove its claim, but later intervened, asking for the return of the indemnity fund. It was held that the trust company could recover, on the ground that the order limiting the time to file claims did not apply to the indemnity fund. The court in its opinion said:
*916 “The court had In mind the Claims of creditors and stockholders ‘entitled to share in the assets of the insolvent’ estate. This fund, at the time of the sale, had not become an asset of the estate, because the purposes of the trust had not been subserved, so as to give the company any tangible, ascertainable, separate interest in the fund. As evidence of what was in the mind of the court, the decree declared ‘that no person shall be entitled to participate in the general assets of the insolvent defendant who shall not present and establish his claim in accordance with this decree.’ Under the contract in question, the rights of the respective parties in this fund cahnot be ascertained and determined until the loans made through the bank shall be adjusted and wound up. Whether or not the bank shall be entitled to have all or any part of this fund and its proceeds returned to them will depend entirely upon the losses, if any, and the extent thereof sustained by the company on the loans made by and through the bank. Nor are these interveners in position to demand and receive this fund, or any part thereof, until they can establish the amount of the loss sustained in the transaction.”
And it is therefore claimed in the case at bar that the securities involved in this proceeding were not included in the order made on March 24, 1910, as they were at that time in the adverse possession of the City Bank.
The first question to be decided is as to what the court below intended by its order. We are unable to agree with counsel in their claim that the order is to be construed as referring only to securities which were in the possession of the trustee at the time the order was made. There is no ambiguity about the order, and no reason for the claim that the order related simply to securities then in the receiver’s possession. To- give such a construction to- the order is to ignore the fact that the order by its express language applied to all persons, except Caroline H. Midgeley, '“making any claim to any of the stocks, bonds, securities, or assets of any kind belonging to this estate or now in the possession of the' receiver,” “or to the proceeds of any of said stocks, bonds, or securities.” In view of this language it is impossible to say that the terms of the order related simply to securities in the then possession of the receiver. Moreover, the order directed the special master to determine “the amounts, if any, which any of the claimants who prove ownership to stock pledged in the various banks, but not sold by the banks, shall contribute to the losses sustained by those whose stocks were pledged to banks and sold out by the said banks under their rights as pledgers.”
Any doubt as to the intended scope of the order, if any doubt be -entertained, is removed by a perusal of the order to show cause and the petition praying for the order to show cause which led to the final order. The petition of the trustee states that there are in the possession, custody, and control of the petitioner certain stocks, bonds, securities, and other assets, and that various proceedings to reclaim have been instituted by various claimants; that it is desirable and necessary to sell the securities and distribute the proceeds among the creditors; that it is inadvisable toi take such action until all rights to the securities are determined. It is then alleged that some creditors of the alleged bankrupt may assert claims to some of said securities or other assets of this estate.
And the order to show cause expressly refers to “stocks, bonds, securities, or other dioses in action or assets of any kind which are now
This court has in a number of cases recognized the right of the District Courts in the exercise of their equity jurisdiction to limit the time for the presentation of claims. For example, in Pennsylvania Steel Co. v. New York City Ry. Co., 198 Fed. 721, 741, 742, 117 C. C. A. 503, 523, 524 (1912), we assumed that such a right existed and said:
“Claims which, when presented within the time limited by the court for their presentation, are certain or are capable of being made certain by recognized methods of computation, should be allowed.”
And again, in Pennsylvania Steel Co. v. New York City Ry. Co., 216 Fed. 458, 462, 132 C. C. A. 518, 522 (1914), we said:
“Of course some day must be fixed, and fixed by the District Court, so as not to delay distribution. In this case he did fix the time before which all claims must be filed against the City Company as December 10, 1907, and against the Metropolitan Company as January 15, 1908.”
And we are also unable to. see why the power of the court to make an order limiting the time within which those claiming the stocks herein involved were to file notice of their claim should be restricted to the stocks which the receiver had actually in his possession at the time the order was made, and not extended to stocks which he did not then actually possess, although having a right to obtain their possession and which he subsequently secured.
It may be conceded that the District Court had no. power to determine in a summary proceeding rights to securities not in its possession. See First National Bank v. Chicago. Title & Trust Co., 198 U. S. 280, 25 Sup. Ct. 693, 49 L. Ed. 1051 (1905). The right to adjudicate in rem interests in a fund depends jurisdictionally upon possession of the fund. Heidenritter v. Elizabeth Oil Cloth Co., 112 U. S. 294, 5 Sup. Ct. 135, 28 L. Ed. 729 (1884). The District Court in its order was not attempting to adjudicate the claims to the stock, but was only fixing a time limit within which persons claiming an interest in the stock should give notice of their claims. In a bankruptcy proceeding, and to facilitate the administration of the estate, it is important that a trustee should be informed of all hostile claims to any part of the estate, both that which has already reached his hands and that which is not at the time in his possession, but which he has a right to- reduce into, his possession. The District Court was therefore justified in making the order it did. That order left the claimants entirely free to proceed in any manner they might be advised to adopt. They were not restrained by the order from pursuing any remedies they thought they possessed. The order was made to protect the trustee against the very course of conduct which in fact the petitioners adopted. The petitioners did not attempt to recover the stocks from the bank. Indeed,'as the stocks pledged were those of margin customers, the pledge as against them was valid, and they could not have maintained an action against it. The trustee eventually recovered the securities, because, as we have seen,
Order affirmed.
Dissenting Opinion
(dissenting). In order to perform its duty of promptly winding up an estate in bankruptcy, the court has power to require claims against property in its possession to be made within a fixed reasonable time or thereafter to be barred. In re T. A. McIntyre & Co., 176 Fed. 552, 100 C. C. A. 140; Penna. Steel Co. v. New York City Railway Co., 198 Fed. 721, 741, 742, 117 C. C. A. 503; Pennsylvania Steel Co. v. New York City Ry. Co,, 216 Fed. 458, 472, 132 C. C. A. 518. The proceeding in such cases is in rem. As between these claimants, the bankrupt, and the hank, the securities in question were lawfully hypothecated. The Bankruptcy Act, however, authorizes the trustee, and only the trustee, to avoid transfer if preferential. Sec. 60b. In this case he did not take any steps to do so until after the time fixed by the court for making claims had expired. Within that period there was nothing to show that any such proceeding would be taken or if taken would prevail. I think the order should not he held effective as to these securities, because they were not in the possession of the court within the time fixed for proving claims. It seems to me that it was beyond the power qf the court to bar claimants before it had the res in its hands. Then, of course, a limit could be- fixed within which adverse claims could be made, and reasonable conditions imposed as to contribution by claimants to the expenses of the proceedings to set aside the transfer. Such of the claimants as could not trace their securities in accordance with the rule laid down in our late decision (In re Hollins, 219 Fed. 544, 135 C. C. A. 312) could not recover. Except as to such claimants, if any, the order should be reversed.