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In re Dolly Madison Industries Inc.

decided: October 10, 1974.

IN THE MATTER OF DOLLY MADISON INDUSTRIES, INC., AND ITS SUBSIDIARIES DOLLY MADISON LEASING AND FURNITURE CORP., MILAN FURNITURE MANUFACTURING COMPANY, KOEN MANUFACTURING COMPANY, CREATIVE CARPET COMPANY, INC., J.S. AUTOMATIC SALES, INC., DAGLEE SEATING COMPANY, BEVIL CO., INC., DOLLY MADISON RESTAURANTS, INC. SUBSIDIARIES OF DOLLY MADISON LEASING AND FURNITURE CORP., DORRIS-HEYMAN HOME FURNISHINGS STORE, INC., HARBOUR-LONGMIRE, INC., DML OF ELMIRA, INC., DOLLY MADISON LEASING AND FURNITURE OF NEW YORK, INC., DEMAND ADVERTISING, INC., DEBTORS; STATE CORPORATION COMMISSION OF VIRGINIA, AN ADMINISTRATIVE, LEGISLATIVE AND JUDICIAL DIVISION OF THE GOVERNMENT OF VIRGINIA, APPELLANT


APPEAL FROM THE ORDER OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA Bankruptcy No. 70-354.

Seitz, Chief Judge, Gibbons and Garth, Circuit Judges.

Author: Garth

Opinion OF THE COURT

GARTH, Circuit Judge

This appeal involves the scope of summary jurisdiction in bankruptcy. We are called upon to determine whether it is within the summary jurisdiction of a Chapter X reorganization court to order a State Corporation Commission to reinstate a debtor's certificate of authority to do business. The District Court's order of October 3, 1973 ordered reinstatement. We reverse and hold that jurisdiction to issue such an order was lacking.

I.

In 1969, Dolly Madison Industries, Inc. (hereinafter "DMI") was issued a certificate of authority to transact business in the State of Virginia by the State Corporation Commission (hereinafter "SCC"). Article IX, Section 2 of the Virginia Constitution (1971) provides that ". . . the [SCC] shall be the department of government through which shall be issued all . . . licenses of foreign corporations to do business in this Commonwealth." In 1970, a registration fee was assessed against DMI pursuant to Sections 58-450 and 58-451, 1950 Code of Virginia, as amended.*fn1 DMI failed to pay the required registration fee and failed to file the annual report required by Sections 13.1-120 and 13.1-121, 1950 Code of Virginia, as amended.*fn2

On June 24, 1970, the District Court for the Eastern District of Pennsylvania entered an order approving DMI's petition for reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C. § 501, et seq. That order, which authorized the trustee to operate the business of the debtor, included, among other provisions, authority to incur the expenses necessary to preserve, protect and conduct the affairs of the debtor;*fn3 specific authority to pay, "The cost of maintaining the corporate existence of said debtor . . ." (Par. 10(c), order of June 24, 1970); and an injunction against interference with the trustee's management of the debtor.*fn4

The trustee, having received notices from several states of the revocation of DMI's certificate of authority to do business, petitioned the District Court for an order enjoining various secretaries of state from cancelling DMI's authorizations. The reorganization court, on the same day, December 4, 1970, issued the desired injunctive order.*fn5

In January 1971, the SCC mailed a notice of registration fee assessment and an annual report form to the debtor corporation. Neither the fee nor the completed 1971 annual report was received by the SCC before the March 1st due date. Accordingly, by letter dated April 30, 1971, the SCC notified DMI that its certificate of authority would be automatically revoked on June 1, 1971, pursuant to Section 13.1-117,*fn6 1950 Code of Virginia, as amended, for failure to file the required annual reports and to pay the related fees for two consecutive years. On May 31, 1971 (one day prior to the statutory revocation date), the SCC received from the trustee of DMI, the debtor's annual reports for the years 1970 and 1971. DMI did not remit any registration fees, contending that ". . . the U.S. District Court . . . has enjoined us from paying any obligations incurred prior to June 24, 1970 and has prohibited any public officials from instituting any actions or proceedings until further notice." (Letter from DMI to the SCC dated May 28, 1971). On June 4, 1971, the SCC returned the two annual reports, pursuant to § 13.1-121, 1950 Code of Virginia, as amended (see n.2, supra), on the ground that the reports were inaccurate as filed. SCC further advised the debtor that its certificate of authority was revoked by operation of law on June 1, 1971, and that the SCC had no discretion in the matter.*fn7

Unwilling to proceed pursuant to Virginia's re-entry statute,*fn8 the trustee petitioned the District Court on May 3, 1973 for an order to show cause why the certificate of authority should not be deemed in full force and effect. The order to show cause issued on May 4, 1973. The SCC argued that the certificate had been revoked automatically under Virginia law for failure of DMI to file annual reports for two successive years (since, when filed, the reports were inaccurate) and for failure of DMI to pay the required registration fees before the June 1, 1971 deadline. The SCC also denied the jurisdiction of the District Court. The Court, in its Memorandum Opinion and Order of October 3, 1973, implicitly rejected SCC's jurisdictional argument and interpreted its prior order of December 4, 1970, as precluding the SCC from taking into consideration pre-petition failures to comply with Virginia law (i.e., the delinquent 1970 filing and fees).*fn9 Concluding that at worst the debtor had failed to comply with Virginia's statutes for one year (1971), the Court ordered the SCC to reinstate DMI's certificate of authority. The SCC appeals from that order.

II.

Section III of the Bankruptcy Act confers on a reorganization court ". . . exclusive jurisdiction of the debtor and its property, wherever located." 11 U.S.C. § 511. Courts of bankruptcy are empowered to issue an injunction in a summary proceeding when necessary to prevent the defeat or impairment of their exclusive jurisdiction or to protect the property and assets of a bankrupt wherever situated. The power of a bankruptcy court to protect by injunction the subject matter of its jurisdiction is inherent in the court as a virtual court of equity and exists as well by virtue of Sec. 2, sub. a(15) of the Bankruptcy Act, 11 U.S.C. § 11, sub. a(15). In re International Power Securities Corp., 170 F.2d 399, 402 (3d Cir. 1948). See In re Standard Gas and Electric Co., 139 F.2d 149, 152 (3d Cir. 1943); First National Bank in Houston, Texas v. Lake, 199 F.2d 524, 528 (4th Cir. 1952).

Summary jurisdiction is generally limited to the adjudication of questions concerning (1) the administration of the debtor's estate, and (2) the property in the court's actual or constructive possession. See Katchen v. Landy, 382 U.S. 323, 327, 15 L. Ed. 2d 391, 86 S. Ct. 467 (1966). See also 2 Collier on Bankruptcy, para. 23.02(1), et seq., 6 Collier on Bankruptcy, para. 3.03, et seq. (14th ed.). The trustee does not contend that the District Court's order was based on the power of the Court to administer the reorganization.*fn10 Thus, the ...


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