the original petition. Therefore, the Rosenbaums' motion to dismiss Counts II and III will be denied.
B. Motions of Messrs. Bevan and Gerstnecker and American Investors Company to Dismiss
Ordinarily, a trustee's action against corporate officers or third parties for alleged fraudulent activity prior to the initiation of a reorganization proceeding is not subject to the reorganization court's summary jurisdiction because the controversy does not involve a claim to the debtor's property or a matter arising in the administration of the debtor's estate. Of course, a person may consent to the reorganization court's summary jurisdiction. In this case, Messrs. Bevan and Gerstnecker and American Investors Company (a different entity than AIC No. 5), have asserted timely objections to this Court's summary jurisdiction.
The Trustees, however, argue that since Bevan and Gerstnecker are properly joined under Rule 13(b) to the Federal Rules of Civil Procedure, this Court has summary jurisdiction over these two counter-defendants. This theory is predicated on the generally-accepted principle of ancillary jurisdiction. In civil actions, once a court has jurisdiction over a plaintiff's claim against a defendant, the Court acquires jurisdiction over the entire case. The concept of a case in this context is understood to mean all claims arising out of the transactions or occurrences which are the subject matter of the original claim. If a defendant's counterclaim names additional parties as counter-defendants, it is generally agreed that there is ancillary jurisdiction over the claims against the additional defendants. 3 Moore Federal Practice, P 13.15; 6 Wright & Miller, Federal Practice and Procedure, § 1436.
The Trustees' argument has facial validity. There is summary jurisdiction over Count I of the counterclaim against AIC No. 5 and its partners, and both Messrs. Bevan and Gerstnecker are properly joined under Rule 13(b). Moreover, the policy consideration of efficient judicial administration that underlies the concept of ancillary jurisdiction is fully applicable in the bankruptcy context. Yet, the concept of ancillary jurisdiction cannot be properly applied to the facts before this Court. In civil cases, the Congressional grants of jurisdiction have been interpreted as conferring upon the Court jurisdiction over the entire case. However, in the bankruptcy context, consent is implied in law from the filing of a claim or otherwise proceeding before the bankruptcy court. Acceptance of the Trustees' theory would mean that AIC No. 5 and its partners have, in effect, by their consent submitted Bevan and Gerstnecker to this Court's summary jurisdiction. Clearly, the Court cannot sanction such an extension of consent principles. In sum, the analogy to ancillary jurisdiction is close to the mark, but it is not adequate.
The above ruling on Count I is applicable with respect to Counts II and III and, therefore, Bevan and Gerstnecker's motions to dismiss will be granted. For the same reasons, the motion of American Investors Company to dismiss will also be granted.
A few additional observations concerning the claims against Bevan and Gerstnecker are appropriate. A fundamental aspect of the § 77 reorganization process, and indeed under Chapter X of the Bankruptcy Act, is the investigation of the Debtor's operations prior to the filing of its petition. When a basis for prosecution of actions against past officers of a debtor exists, trustees are obligated vigorously to prosecute such actions. Although the present ruling represents a setback to the discharge of the Trustees' fiduciary obligations under the Act, the Trustees remain obligated to pursue those causes of action which they conclude exist against the past officers. To the extent multiple litigation is involved, those costs must be incurred to preserve the integrity of the reorganization process.
It is worth noting in this connection that a potential aspect of the disposition of the present motions was an analysis of whether plenary jurisdiction existed in this Court to hear the Trustees' counterclaims. Although the parties have not elaborated on this theory, the reasoning of the Supreme Court in Williams v. Austrian, 331 U.S. 642, 91 L. Ed. 1718, 67 S. Ct. 1443 (1947), and particularly Justice Frankfurter's dissenting opinion, supports the conclusion that a § 77 reorganization court presiding over a debtor's reorganization has plenary jurisdiction over trustee's claims against past officers for fraud and mismanagement. Such plenary jurisdiction is not dependent on 28 U.S.C. §§ 1331 or 1332, but has its source in the conferral on § 77 reorganization courts of the jurisdiction of an equity receivership court. If plenary jurisdiction of these parties can be obtained promptly, perhaps all aspects of this litigation can be tried in one proceeding.
C. Motion to Sever Count I from Counts II and III
At this juncture, AIC No. 5's motion to sever will be denied. Discovery will go forward with respect to all three counts, and if it later appears that it would be more efficient to structure the hearing schedule to focus on counts separately, an appropriate order will be entered.
ORDER NO. 2456
AND NOW, this 16th day of July, 1976, it is ORDERED that:
1. The motions of the respective partners of AIC No. 5 to dismiss Counts I, II and III of the Trustees' counterclaim are DENIED.
2. The motions of Messrs, Bevan and Gerstnecker to dismiss Counts I, II and III of the Trustees' counterclaim are GRANTED, and the motion of American Investors Company to dismiss Count III of the Trustees' counterclaim is also GRANTED.
3. The motion of AIC No. 5 to sever Count I from Counts II and III is DENIED.
John P. Fullam / J.