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IN RE ALLIED CONST.

July 30, 1948

In re ALLIED CONST., Inc.


The opinion of the court was delivered by: GOURLEY

This case presents a problem of conflicting jurisdiction between the State Court and the United States District Court for the Western District of Pennsylvania.

The matter comes before the Court on petition of James B. Clark, a creditor of the above bankrupt. It appears that on July 6, 1948, in the Court of Common Pleas of Beaver County, in an action brought by James B. Clark and other creditors, an order was entered by said Court appointing a receiver for Allied Construction, Inc. Said receiver duly qualified on July 7, 1948, and conferred with counsel for Allied Construction, Inc., and was assured of cooperation in the matter of the management and conduct of the affairs of said corporation.

 On July 9, 1948, Allied Construction, Inc., filed a petition in voluntary bankruptcy in the United States District Court for the Western District of Pennsylvania. The Court appointed a receiver for said bankrupt estate and approved the employment of counsel for said receiver.

 It is the contention of the creditor that since said corporation was in receivership in a state court, the Board of Directors of said corporation had no authority by resolution to authorize the execution of the petition in bankruptcy by the Secretary and Treasurer of Allied Construction, Inc.

 It is requested that the order which approved the filing of the voluntary petition in bankruptcy, the appointment of a receiver and the appointment of legal counsel for the receiver, and the order directing the receiver appointed by the State Court to deliver the assets and property of the bankrupt estate to the receiver of the Federal Court be vacated for the following reasons:

 (a) That after the Court of Common Pleas of Beaver County, Pennsylvania, at No. 13 June Term, 1948, issued its order appointing a receiver and after the said appointee qualified, Allied Construction, Inc. had no legal right to take corporate action of any kind whatsoever so that its petition in voluntary bankruptcy is a nullity.

 (b) The officers of Allied Construction, Inc., are in contempt of the Court of Common Pleas of Beaver County, Pennsylvania, in attempting to take corporate action independently of the State Court receiver.

 (c) That the petition in voluntary bankruptcy and the petition for appointment of receiver were presented without notice of the presentation thereof to the State Court receiver.

 (d) That the State Court receiver is thoroughly familiar with the operations of the Allied Construction, Inc., and has at his command information, experience and ability which qualifies him to administer the affairs of the Allied Construction, Inc., and in addition he has the confidence and cooperation of the majority of the creditors of Allied Construction, Inc.

 Counsel for the Federal Court receiver contends that the appointment of the State Court receiver was an act of bankruptcy on the part of Allied Construction, Inc., and that the Federal Court cannot be divested of its authority to administer the bankruptcy laws by a state court.

 Question involved -- may a corporation for which a receiver is appointed in a State Court file a petition in voluntary bankruptcy?

 A corporation is not deprived of the right to file a petition in voluntary bankruptcy merely because its property was in the custody of a state court receiver. Struthers Furnace Company v. Hugh W. Grant, Receiver, 6 Cir., 30 F.2d 576.

 It is earnestly contended by counsel for the petitioner that the purpose of filing the voluntary petition in bankruptcy was to escape the jurisdiction of the state court, and it is inferred that a fraud would be perpetrated upon the creditors if the state court is not permitted to proceed with the receivership. There is no allegation of fraud, however, in the petition.

 If fraud did exist or had been established, I believe it would be the duty of the Court to vacate the orders which have been entered, but the mere endeavor to substitute federal for state control does not constitute fraud. ...


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