The opinion of the court was delivered by: GORBEY
On December 7, 1972, the Honorable Emil F. Goldhaber, Bankruptcy Judge, after due notice and hearing, entered an order authorizing and directing the sale of certain securities which had been pledged by Albert & Maguire Securities Company, Inc. (hereafter referred to as Debtor) with the Stock Clearing Corporation of PBW Stock Exchange, Inc. (hereafter referred to as SCC) as collateral for a loan to the Debtor, and the use of the proceeds of such sale to pay the full amount of that loan and accrued interest thereon. This was done, and pursuant to court order, the excess proceeds have been segregated by the Trustee, pending the resolution of the issues raised by the Petition for Review now under consideration.
As indicated in Judge Goldhaber's certificate on the Petition for Review, dated February 9, 1973, the order sought to be reviewed was based on his conclusion that the securities which had been pledged by the Debtor were not "specifically identifiable property" within the meaning of the Securities Investor Protection Act of 1970 (hereafter referred to as 1970 Act), 15 U.S.C. § 78aaa, et seq. The Petition for Review is based on the theory that included in the securities used by the Debtor to collateralize the loan was the property of the Petitioners for Review, therefore they should have been permitted to pay off the loan and receive the securities, but inasmuch as the securities have been sold to satisfy the loan, they claim they are entitled to receive a portion of the excess proceeds segregated by the Trustee.
As stated in the Trustee's brief, page 2, the gross value on the bankruptcy date of the account of Charles and Etta Chiampi was $292,sc80,52477.86, subject to a debt owed the broker of $151,sc80,53566.73, with a net value of $140,sc4,54911.13. The gross value on the bankruptcy date of the account of Xavier Chiampi was $148,sc80,55314.28, subject to a debt owed the bankrupt Debtor of $54,sc4,56744.59, with a net value of $93,sc80,57569.67.
Only a small portion of the values represent cash accounts not relevant to the Petition for Review; all the rest related to margin accounts carried by the Debtor for the three petitioners.
On October 19, 1972, the date of the Trustee's appointment, pursuant to the 1970 Act, the Debtor owed the SCC approximately $950,sc80,58000.00, which loan was collateralized by the pledge of securities by the Debtor, with the market value at that time of approximately $1,sc4,59440,000.00.
The SCC issued a margin call on the loan immediately after the Trustee's appointment. The Trustee was without funds to pay the loan, but SCC was, by order of this court, prevented from foreclosing on such loan for a temporary period. SCC agreed with the Trustee not to attempt to foreclose such loan if the Trustee would seek authority from the Bankruptcy Court to sell out the collateral and pay off such loan, and the Trustee agreed that he would not ask an extension of this court's prohibition of foreclosure until the Bankruptcy Court could rule on his sale petition.
Such a petition was filed by the Trustee, and a hearing thereon was set by the Bankruptcy Judge for December 7, 1972. Adequate notice of such hearing was given to all customer creditors of the Debtor, and such hearing was held on the date set. At the hearing the Bankruptcy Judge issued an order authorizing and directing the Trustee to sell the collateral on pledge, and to pay with the proceeds thereof, the loan and accrued interest thereon. It is this order which is the subject of this Petition for Review. Brief of respondent Trustee, pages 3 and 4.
The legal issues presented here are governed by the 1970 Act, which created the Securities Investor Protection Corporation, of which § 60(e) of the Bankruptcy Act (11 U.S.C. § 96(e)) is its predecessor. These issues are:
1. Whether the petitioners have a legal right to reclaim any of the securities on pledge, or since the securities have been sold to satisfy the loan, whether they are entitled to receive a portion of the excess proceeds segregated by the Trustee.
This requires a determination of the subsidiary issues (a) whether the pledge of securities by the Debtor constituted a segregation in bulk; (b) whether the petitioners can seek reclamation although they owed Debtor substantial sums with respect to such securities.
2. Whether the relationship between Debtor and petitioners was a "contractual commitment" which was "outstanding" at the time of bankruptcy.
3. Whether the 1970 Act is constitutional under the Fifth Amendment, should the preceding questions be answered in the negative.
ISSUE 1. The pledge of the securities by the Debtor was not a segregation in bulk. Petitioners urge a contrary conclusion relying on § ...