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MANDEL v. SCANLON

February 10, 1977

Philip MANDEL, as Trustee of William Gluckin & Co., Inc. a/k/a Naturflex
v.
John R. SCANLON and Katherine M. Scanlon



The opinion of the court was delivered by: KNOX

 This case requires the court to consider the fundamental theme underlying the Bankruptcy Act, equality of distribution, under an unusual set of facts. *fn1" The plaintiff, Philip Mandel, is a trustee of a bankrupt corporation, William Gluckin and Company, Inc. [Hereinafter: Gluckin]. In his capacity as trustee, the plaintiff seeks to recover a transfer of money made by a subsidiary of Gluckin, Multipane, Inc. to the defendants, John R. and Katherine M. Scanlon. The plaintiff seeks this recovery in reliance upon the Bankruptcy Act provisions outlawing preferential transfers, 11 U.S.C. § 96 and fraudulent transfers, 11 U.S.C. § 107.

 A non-jury trial held on September 29, 1976, disclosed a lengthy sequence of events involving the Scanlons and Multipane, Inc. preceding the filing of this lawsuit. Prior to 1968, the Scanlons were the sole shareholders of Architectural Building Specialties Company [Hereinafter ABS], a Pennsylvania corporation engaged in the manufacture and sale of aluminum and glass building products. In the Spring of 1968, Mr. David Diamond, President of Multipane, Inc., approached the Scanlons, first by telephone and then at two meetings, with a proposition to buy ABS.

 Mr. Diamond, and at the second meeting Mr. Gerald Gluckin, president of the parent corporation, represented to the Scanlons that Multipane had developed a new process to treat glass so as to improve its conductive properties. This process could be applied to ABS products.

 As a result of these representations, the Scanlons agreed to sell ABS to Multipane for $98,000 of Gale Industries stock, Gale Industries being another subsidiary of Gluckin, and a five-year employment contract.

 The Scanlons never received the Gale Industries stock which was the primary consideration for the sale of ABS to Multipane in spite of numerous phone calls and meetings. Finally, the Scanlons filed suit against Multipane in this district at Civil Action No. 70-1405 alleging that they were deceived into selling ABS to Multipane by fraudulent misrepresentations and omissions of material facts and were never paid the consideration due to them.

 In May 1971, while the above action was pending, the Scanlons were notified that the assets of Multipane were to be sold at a bulk sale. The Scanlons filed a motion for preliminary injunction to enjoin this sale. The parties subsequently entered into a stipulation whereby $25,000 of the proceeds of the bulk sale were to be set aside to secure payment "of any final, non-appealable judgment entered in favor of plaintiffs and against defendant Multipane in this action".

 In November, 1972, the Scanlons withdrew their lawsuits against Multipane in return for payment of $23,000 of the $25,000 originally set aside at the bulk sale with the remaining $2,000 to go to their attorneys.

 In December, 1972, the Scanlons received a cashier's check for $23,000 drawn on a "factoring account" at the First National Bank of Boston from the attorneys for Multipane and Gale.

 On February 27, 1973, Gluckin as Debtor filed a Chapter X Bankruptcy proceeding in the Southern District of New York. *fn2" On February 26, 1975, the present suit was filed in this court seeking recovery of the December, 1972, payment of $23,000 to the Scanlons.

 (1) Preferences

 Developing early in the common law of England and reflected in numerous drafts of the Bankruptcy Act in the United States, the law has looked with suspicion upon payments by a debtor to one or more creditors in preference to the general class of creditors. *fn3" The Bankruptcy Acts in the United States have accordingly invalidated certain transfers occurring before bankruptcy to a preferred class of creditors.

 The current act (11 U.S.C. § 96) according to Collier's treatise requires seven factors, all of which must be proven by the trustee to ...


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