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In re Standard Gas & Electric Co.

April 23, 1941

IN RE STANDARD GAS & ELECTRIC CO.; HASTINGS
v.
H. M. BYLLESBY & CO. ET AL.



Appeal from the District Court of the United States for the District of Delaware; John P. Nields, Judge.

Author: Maris

Before MARIS, CLARK, and JONES, Circuit Judges.

MARIS, Circuit Judge.

Standard Gas and Electric Campany, hereinafter called Standard, filed its petition for reorganization under Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, in the District Court for the district of Delaware on September 27, 1935. A plan for its reorganization was confirmed March 5, 1938. The court had appointed Daniel O. Hastings special trustee on November 26, 1937, vested in him title to any causes of action which Standard might have and authorized him to prosecute the same. Pursuant to this authority Hastings filed a bill of complaint on July 27, 1938, in the District Court for the District of Delaware, alleging nineteen causes of action against fifty-six defendants.His theory was that some of the defendants had combined to gain control of Standard and had used such control so as to profit themselves at the expense of Standard, and others had contributed to such damage to Standard by their negligent failure to exercise that degree of care in the conduct of Standard's business required of them as corporate officers and directors. The plaintiff prayed for an accounting and for money judgments. Service of process was made in Delaware upon three defendants, which were Delaware corporations and residents of that state. Service was made upon fiftythree defendants who were residents of states other than Delaware upon process issued by the Delaware court and served outside the territorial limits of that state. None of the defendants consented to be sued in the district of Delaware. All appeared specially. The resident defendants moved to dismiss the complaint on the ground that in the absence of diversity of citizenship the court had no jurisdiction over the subject matter of the controversy. The nonresidents moved to vacate the order of the district court providing for service of process upon them outside the district, to vacate the return of service and to quash the subpoenas served upon them outside the district. The court found, as to the resident defendants, that it had no jurisdiction to entertain the suit and, as to the nonresidents, no jurisdiction over their persons. It entered an order quashing the process and dismissing the complaint. This appeal followed.

We shall consider first the question as to the court's jurisdiction to entertain the suit against the resident defendants. The issue as to those defendants, Byllesby Corporation, H. M. Byllesby and Company and Standard Power and Light Corporation, is whether the district court sitting in the state of their incorporation has jurisdiction of a plenary action brought against them by the special trustee of the debtor, appointed under Section 77B of the Bankruptcy Act. Since the plaintiff, the debtor and the defendants are all citizens of Delaware there can, of course, be no jurisdiction based on diversity of citizenship. Nor can jurisdiction be based upon consent under Section 23, sub. b of the Bankruptcy Act, 11 U.S.C.A.§ 46, sub. b, since the defendants at no time consented to be sued in that jurisdiction. The plaintiff contends that jurisdiction is conferred upon the district court by Section 2, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 11, sub. a, and by the fact that the suit is one arising under the laws of the United States; that the limitation upon the power of a trustee in bankruptcy to bring suit which is contained in Section 23, sub. b of the Bankruptcy Act is not applicable to a suit brought by a trustee appointed in a corporate reorganization proceeding under either Section 77B of the Bankruptcy Act or Chapter X of the Act, 11 U.S.C.A. § 501 et seq., and that Chapter X applies to the present proceedings.

Subdivisions (6) and (7) of Section 2, sub. a of the Bankruptcy Act, as amended, 11 U.S.C.A § 11, sub. a (6) and (7), upon which the plaintiff relies, grant to the district courts, sitting as bankruptcy courts, the jurisdiction "within their respective territorial limits" to:

"(6) Bring in and substitute additional persons or parties in proceedings under this Act [title] when necessary for the complete determination of a matter in controversy;

"(7) Cause the estates of bankrupts to be collected, reduced to money and distributed, and determine controversies in relation thereto, except as herein otherwise provided, and determine and liquidate all inchoate or vested interests of the bankrupt's spouse in the property of any estate, whenever under the applicable laws of the state, creditors are empowered to compel such spouse to accept a money satisfaction for such interest."

The exception referred to is found in Section 23 of the Bankruptcy Act, 11 U.S.C.A. § 46, which, as amended, provides:

"a. The United States district courts shall have jurisdiction of all controversies at law and in equity, as distinguished from proceedings under this Act [title], between receivers and trustees as such and adverse claimants, concerning the property acquired or claimed by the receivers or trustees, in the same manner and to the same extent as though such proceedings had not been instituted and such controversies had been between the bankrupts and such a adverse claimants.

"b. Suits by the receiver and the trustee shall be brought or prosecuted only in the courts where the bankrupt might have brought or prosecuted them if proceedings under this Act [title] had not been instituted, unless by consent of the defendant, except as provided in section 60 [96], 67 [107], and 70 [110] of this Act [title]."

Prior to bankruptcy Standard could not ahve sued these Delaware defendants in the district court for that state upon the cause of action here alleged. nor could its trustee in bankruptcy have done so thereafter in view of the provisions of section 23, sub. b unless the defendants had consented to be sued in that district.*fn1 Bardes v. Hawarden Bank, 178 U.S. 524, 20 S. Ct. 1000, 44 L. Ed. 1175; Schumacher v. Beeler, 293 U.S. 367, 55 S. Ct. 230, 79 L. Ed. 443. The question remains whether the limitation of section 23, sub. b applies to a plenary suit brought by a trustee appointed for a corporation in reorganization under section 77B.

Subdivision o of section 77B provides that all sections of the Bankruptcy Act consistent with section 77B are applicable to proceedings thereunder. Furthermore subdivision k does list several sections of the Bankruptcy Act which are expressly made inapplicable to reorganization proceedings under section 77B. Section 23 is not one of the sections so listed. It thus appears that section 77B does not expressly exclude the application of section 23 to corporate reorganization proceedings and that if such exclusion is to be inferred it must be on the basis that the two sections are inconsistent.

The plaintiff relies in support of his argument that the two sections are in fact inconsistent upon that part of subdivision a of section 77B, 11 U.S.C.A. 207, sub. a, which provides: "* * * If the petition or answer is so approved, an order of adjudication in bankruptcy shall not be entered and the court in which such order approving the petition or answer is entered shall, during the pendency of the proceedings under this section, have exclusive jurisdiction of the debtor and its property wherever located for the purposes of this section, and shall have and may exercise all the powers, not inconsistent with this section, which a ...


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