110 F.2d 617 | 2d Cir. | 1940
■ This appeal requires a decision as to whether or not secured creditors in an equity receivership in the District Court for the Southern District of New York may prove the face amount of their claims and be. limited as to dividends to an amount not to exceed that less whatever may be realized upon their security in accordance with the so-called equity rule; or may prove only as in bankruptcy for the difference between the face of their claims and the value of the security held. The equity r,ule was applied below and unsecured creditors have appealed. Two cases are before us but as the issues in each are the same no distinction will be made between them except in the following statement of the facts.
The Prudential Insurance Company of America, a New Jersey corporation, filed a creditor’s bill in the District Court against Land Estates, Incorporated, a New York corporation, and another like suit against Liberdar, also a New York corporation, on August 18, 1933. Jurisdiction was based on diversity of citizenship. A receiver was appointed in each action and orders made governing the filing of claims. Both the defendants were wholly owned subsidiaries 'of the New York Title and Mortgage Company which had been in the guaranteed mortgage business; had fallen into financial difficulties; and on July 15, 1935 proceedings for its liquidation under the New York statute known as the Schackno Act, Unconsol.Laws, § 1796 et seq., were commenced. Both the defendants in the receivership suits were business corporations who had executed mortgages on real estate to secure their bonds in which many investors had secured an undivided interest through the purchase of certificates of participation. Payment of the bonds and mortgages were guaranteed by the •Title Company but the defendant corporations themselves were not engaged in the insurance business.
The appellees are trustees of designated issues of certificates of participation in
We shall make no point of the fact that the orders allowing the claims were not opposed. Of course the appellants were not entitled to notice of the master’s report as to claims filed by others and in which they had no interest. The receiver did have notice and did not oppose confirmation but as no action has been taken which cannot readily be undone, if necessary, we give consideration to the appellant’s position on the merits as was done below.
It was held in Nolte v. Hudson Nav. Co., 2 Cir., 31 F.2d 527, that, in a creditor's suit in the federal court where jurisdiction depended upon diversity of citizenship, claims are allowable according to the law of the forum and the assets distributable as that law requires. We adhere to that with all the more reason since Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, and hold that the New York law controls the allowance of these claims.
Putting aside for the moment the effect of certain comparatively recent New York statutes, it is clear that the allowance of claims in a receivership like this is to be done in New York in the way it was done below in winding up an insolvent corporation by letting a creditor prove for the face of his claim as of the time of the appointment of the receiver without regard to the value of security held but with a limitation of dividends to an amount which will not, when added to what is realized from the security, exceed the amount of the debt. People v. E. Remington & Sons, 121 N.Y. 328, 24 N.E. 793, 8 L.R.A. 458; McGrath v. Carnegie Trust Co., 221 N.Y. 92, 116 N.E. 787. This is the same as the so-called federal rule established by Merrill v. National Bank of Jacksonville, 173 U.S. 131, 19 S.Ct. 360, 43 L.Ed. 640.
In dealing with the New York statutes upon which appellants rely, it may be said at once that as neither of these corporations in receivership was an insurance company there are here no creditors of a failed insurance company to prove their claims as § 425 of the Insurance Law, Consol.Laws, c. 28, requires nor are there any creditors of a voluntary assignor to be governed by § 15 of the Debtor and Creditor Law, Consol.Laws, c. 12. It may likewise be said that we are not here concerned with whether or not it would be fairer to all in general to apply the equity rule or the bankruptcy rule as to proof of claims in such proceedings as this. The argument that the New York legislature could not have meant to apply the so-called bankruptcy rule to those two named situations and not to creditors’ bills has its appeal but it must fail here because of the position taken by the courts of New York in Andes Co-operative Dairy Co. v. Baldwin, 238 App.Div. 726, 266 N.Y.S. 18; affirmed 263 N.Y. 578, 189 N.E. 705; and In re Consolidated Indemnity & Ins. Co., 255 App.Div. 501, 8 N.Y.S.2d 217.
The reversal of this case in 277 N.Y. 66, 13 N.E.2d 41, 115 A.L.R. 614 did not affect this point.