Service Industries, Inc., and it would require those corporations "to use the loan proceeds to refurbish and/or replace the flood-damaged boilers and distribution system" of Steam Heat Company.
Concurrently, on August 18, 1972, Authority loaned the $2,500,000.00 to Steam Heat Company, PUIC and ISI, which corporations executed a note in that amount, payable to Authority on or before November 18, 1972, and in which the said corporations agreed to "use the loan proceeds to refurbish and/or replace the flood-damaged boilers and distribution system" of Steam Heat Company.
On the same day, August 18, 1972, the Authority assigned to the Commonwealth of Pennsylvania, without recourse, the note executed by Steam Heat Company, PUIC and ISI.
On the same day, August 18, 1972, PUIC and The First Pennsylvania Banking and Trust Company ("Bank") entered into an Agreement labeled "Escrow Agreement", whereby PUIC agreed to deposit the proceeds of the $2,500,000.00 loan with Bank in an "Escrow Deposit," which funds would be disbursed by Bank to a designated payee only upon receipt of a voucher from PUIC incorporating a certification that the requested disbursement was to be used for the purposes contained in the form of note from the Authority to the Commonwealth of Pennsylvania, and signed by the President of Utilities (Arthur C. Crimmins), the Secretary of Commerce of the Commonwealth of Pennsylvania (Walter G. Arader), or their designated representatives. The Agreement was signed by PUIC and Bank and consented to in writing by Steam Heat Company and ISI. The account set up by Bank pursuant to said agreement was, and still is, "Public Utilities Investment Corporation -- Wilkes Barre Steam Heat Co. Escrow Account."
Ric-Wil alleges that subsequent to August 18, 1972 it was informed of the $2,500,000.00 loan and the procedures for disbursement to be used to refurbish the steam distribution system of the Steam Heat Company, and in reliance thereon delivered pipe to the Steam Heat Company between the dates of September 8, 1972 and October 26, 1972, for which pipe it has not been paid the sum of $40,629. Ric-Wil claims that the $400,000.00 in the bank account is a trust fund set up for payment to suppliers of materials to the Steam Heat Company.
On November 8, 1972 Steam Heat Company, Pennsylvania Utilities Investment Corporation ("PUIC") and four other related corporations filed for an arrangement under Chapter XI of the Bankruptcy Act in the United States District Court for the Eastern District of Pennsylvania. On December 5, 1972, International Services Industries, Inc. ("ISI") and three other affiliated companies also filed Chapter XI petitions, and the proceedings were consolidated for administrative purposes under Civil Action No. 72-714.
On November 10, 1972, the Court entered an Order naming Samuel S. Baxter and Harold J. Conner, Esq. as Receivers for the debtor corporations and restraining all persons, firms, corporations, and creditors from commencing or continuing suits against the debtors or "in any wise interfering with the exclusive possession and control by the Receivers of said property of the Debtors."
On November 27, 1972, upon notice to the Commonwealth of Pennsylvania and several other parties, but without notice to Ric-Wil, the Referee entered an Order authorizing the Receivers to expend $254,000 for the repair and refurbishing of the Steam Heat Company, and for that purpose to draw upon the fund of approximately $400,000 on deposit with The First Pennsylvania Banking and Trust Company in the account entitled "Public Utilities Investment Corporation -- Wilkes Barre Steam Heat Co. Escrow Account" (the "Escrow Fund").
On December 14, 1972, Ric-Wil, the plaintiff in the instant proceedings, filed with the Referee its petition for temporary, preliminary and final injunctive relief and an order declaring that the Escrow Fund of approximately $400,000 is a trust fund for the benefit of the creditors who had provided labor and materials to the Steam Heat Company and is not the property of the debtor.
On December 14, 1972, the Referee entered an Order denying the petition of Ric-Wil for a temporary restraining order and fixed January 16, 1973 as the date for a hearing, which date was later changed to January 8, 1973 by the Referee.
On December 15, 1972, the Plaintiff filed its petition with this Court requesting an order temporarily restraining the Receivers from using the funds in said escrow account pending a hearing before the Referee in Bankruptcy, and on the same day this Court, after hearing, denied the petition. An Appeal was then taken, and on December 26, 1972 the Court of Appeals likewise denied Plaintiff's petition for a temporary restraining order.
This Court now determines that the Bankruptcy Court has exclusive jurisdiction over the $400,000.00 fund. It is property in the possession of the Bankruptcy Court, and the Bankruptcy Court has exclusive jurisdiction of said fund. 1 Collier on Bankruptcy, para. 2.06, pp. 152-157. It is there stated, at pp. 155-157:
Once acquiring proper possession of the bankrupt's property, the court is vested with exclusive jurisdiction, within the limits prescribed by the Bankruptcy Act, to determine all liens and interests affecting the estate, and to prevent, by proper orders, the doing of anything that will, at any stage of the proceeding, tend to embarrass the court in the equitable distribution of the estate of the bankrupt.
Section 311 of the Bankruptcy Act, 11 U.S.C. § 711, gives the Court, in Chapter XI proceedings, "exclusive jurisdiction of the debtor and his property, wherever located." The effect of Section 311 on the Bankruptcy Court's jurisdiction is analyzed in 8 Collier on Bankruptcy, para. 3.02, p. 176 et seq., as follows:
Section 311 gives the Court in which the [arrangement] petition is filed 'exclusive jurisdiction of the debtor, and his property, wherever located.' That jurisdiction over property rests on ownership of property, as distinguished from possession. There is no comparable provision in Chapters I to VII. With some exceptions, where a third party in an ordinary bankruptcy proceeding under Chapters I to VII has possession of the property involved and asserts a substantial adverse claim thereto, the bankruptcy court does not acquire summary jurisdiction over a controversy with respect to that property, even though ownership of the property is in the bankrupt. As a result of § 311, however, the court in a proceeding under Chapter XI has summary jurisdiction over a controversy in that situation . . ."