author: CLARK, District Judge.

text:
    KOON et al. v. BOTTOLFSEN et al.
    No. 2333.
    District Court, D. Idaho, S. D.
    April 16, 1944.
    Walter H. Anderson, of Denver, Colo., for plaintiffs.
    Frank Langley, Atty. Gen., of Idaho, and John R. Smead and P. J. Evans, Asst. Attys. Gen., of Idaho, for defendants.
   CLARK, District Judge.

This action is for a declaratory judgment, brought by E. K. Koon, Frank Barmettler and American National Bank, citizens of Colorado, against C. A. Bottolfsen, Edwin M. Holden and L. E. Glennon, residents of the State of Idaho. The action was filed March 6, 1945.

It is alleged in the complaint that the jurisdiction of the Court depends upon diversity of citizenship of the parties and Section 400 of 28 U.S.C.A.

It is further alleged that Bottolfsen, Holden and Glennon comprise the Idaho Code Commission by virtue of Chapter 103 of the Idaho Session Laws of 1943, and that on the 23rd day of June 1943 the said E. K. Koon, doing business tinder the name of Courtright Publishing Company, entered into a contract with the Idaho Code Commission composed of the defendants Bottolfsen, Holden and Glen-non, and a copy of the contract is attached and made a part of the complaint. The contract is in words and figures as follows:

“Contract

“This agreement, Made and entered into this 23rd day of June, 1943, by and between the State of Idaho, acting through its present Governor C. A. Bottolfsen, the Chief Justice of the Supreme Court of the State of Idaho, Edwin M. Holden and L. E. Glennon, the present President of the Idaho State Bar, being the 1943 Code Commission, as party of the first part, and E. K. Koon, doing business as Courtright Publishing Company, party of the second part, witnesseth:

“That whereas, the Twenty-Seventh Legislature of the State of Idaho enacted a law known as Chapter 103 of the Session Laws of 1943, providing for the compilation, annotation, and publication of the Codes and Statutes of the State of Idaho;

“And whereas, by the provisions of said law, the present Governor of the State of Idaho, C. A. Bottolfsen, one member of the present Supreme Court of the State of Idaho, to be selected by the Supreme Court, which member was regularly selected and is the present Chief Justice of the Supreme Court of the State of Idaho, Edwin M. Plolden, and present President of the Idaho State Bar, L. E. Glennon, were created a 1943 Code Commission and directed to compile, annotate, and publish the Codes and Statutes of the State of Idaho, under the provisions of said Chapter 103;

“And whereas, said persons met and organized by the selection of C. A. Bottolfsen, as President, and L. E. Glennon, as Secretary, in accordance with said law, and thereafter called for bids for making said compilation, annotation, and publication of the Codes and Statutes of the State of Idaho.

“And whereas, The said persons met together in the office of the Governor of the State of Idaho, at two-thirty o’clock P. M. on the 30th day of April, 1943, the hour appointed for considering bids, and there received and considered bids, and ''ecessed to the 7th day of May, 1943, at 2:30 P. M., on which day the Commission again recessed to the 17th day of May 1943, at 2:30 P. M.

“And whereas, at a meeting of said Commission on the 17th day of May, 1943, the first party rejected all bids, and thereupon decided to negotiate a contract for the compilation, annotation, and publication of said code.

“Now, therefore, in accordance with the authority granted by Chapter 103 of the 1943 Session Laws of the State of Idaho to compile, annotate and publish the Codes and Statutes of the State of Idaho, which compilation shall contain the Constitution of the United States and of the State of Idaho, Magna Charta, the Declaration of Independence, the Organic Act of the Territory of Idaho, the Act admitting Idaho into the Union, the laws of the United States providing for the naturalization of citizens, statutes of the United S cates relative to the authentication of records, the laws of a permanent and general nature of the State of Idaho, including the enactments of the 27th Session of the Legislature of the State of Idaho shall be annotated by notes and references to the decisions of the Supreme Court of the State of Idaho, the Federal Courts and the Supreme Court of the United States, citing or construing the same; the history of each particular section of the Constitution and Statutes of the State of Idaho and constitutional provisions and statutes of other states of identical or similar character, and the Uniform Laws and American Law Institute compilations, together with a thoroughly serviceable, complete, accurate, modern index to the Constitution of Idaho and the general laws of the State of Idaho. It shall contain also a parallel reference table to the origin of each such law through the various compilations and codifications of such law, including the Revised Statutes of 1887, where the origin of such law relates back thereto, as well as a special index of special laws, and such other ancillaries as the party of the second part, with the consent of the party of the first part, may deem proper to include.

“The party of the second part contracts that the 1943 Code shall be edited, compiled, annotated, published and strongly bound and re-inforced with first-class backing flannel (not super), strongly sewed, using DuPont fabricoid or buckram binding, such Code to be printed in 10-point type- on a 10-point slug, with notes and annotations in 8 point type on an 8-point slug, and on the best quality 45 pound book paper. The overall page dimensions shall be 7" x 10'' and the type page 4-%" x 8-t/g", or 29 x 49 Picas. Other materials (as substitutes for unavailable specified materials) shall be used only if mutually agreed to by the parties hereto.

“Said Code shall be published in six (6) volumes, including the index. The arrangement of the material therein to be such as to include related material in each volume so far as possible, without pocket supplements or binding adapted to the use thereof. The general style and arrangement shall be the same as the Idaho Code Annotated 1932, the text being 'printed in one column, with annotations and notes in double column.. This compilation shall be entitled and called ‘Idaho Laws Annotated 1943’, or such other similar name as may be designated ■by the said Commission.

“Each volume shall contain a thoroughly serviceable, complete index thereof, with complete cross references covering all subject matters in each volume; also a complete, full first-class, thoroughly serviceable index in the last volume, which shall cover the entire Code, together with a table of parallel references to omitted laws of Idaho.

“The procedure to be followed in the printing, binding, and publishing of this Code shall be as follows: The second party shall furnish the secretary of this Commission with ‘galley’ proof copies of the various material to be included in such compilation, including annotations and footnotes for approval by the first party, which shall have been first carefully proof! read and corrected by the second party before forwarding the same to said secretary, and the secretary shall then check such ‘galley’ proofs, correcting errors therein, if any, and return the proofs to the publisher, who shall make such corrections as have been noted, and shall then forward to the Secretary of the Commission ‘page’ proofs which the secretary shall check for errors and return to the publisher for correction of such errors as have been noted, notwithstanding the checking of the ‘galley’ proofs and ‘page’ proofs by the secretary of the first party, the responsibility for the correction of all errors therein shall nevertheless, be the sole responsibility of the second party.

“Second party further agrees to compile, annotate, and publish the said completed work in the form prescribed by the first party as herein outlined, and have the same bound and ready for delivery for the use of the State of Idaho and its municipalities and subdivisions on or before the first day of July, 1944. Provided, that if the party of the second part shall, without negligence or fault on its part, be delayed because of inability to obtain materials or labor, as specified in this contract, or because of war, Federal priorities, strikes, or other causes beyond its control, then in every such event the period of delay so caused shall be added to the time herein specified for the completion of the work, and the party of the second part shall not be in default if such work shall be completed within the stipulated time, increased by a period of time equal to the duration of such delay.

“Upon the approval of the said compilation by the first party the second party shall immediately print, bind, and deliver to the Secretary of State, at Boise, Idaho, transportation prepaid, 1,000 sets of six (6) volumes each of said publication, at Forty ($40.00) dollars per set, lawful money of the United States.

“The contract price for the sets of such Code to be furnished to the State of Idaho shall be paid as follows: Upon the approval of Volume I by the first party, the sum of Five Thousand ($5,000.00) Dollars. Upon the approval of Volume 2, a like sum of Five Thousand ($5,000.00) Dollars. Upon the approval of Volume 3, the sum of Five Thousand ($5,000.00) Dollars. Upon the approval of Volume 4, the sum of Five Thousand ($5,000.00) Dollars. Upon the approval of Volume 5, the sum of Five Thousand ($5,000.00) Dollars; and upon the approval of Volume 6, or within thirty days thereafter, the balance of the contract price. All such payments are to be made in warrants drawn upon the code fund provided in Chapter 103 of the Session Laws of 1943, and the appropriation provided for therein.

“Second party further agrees to deliver to the Secretary of State, at Boise, Idaho, transportation prepaid, additional sets of said Code for the use of the State in lots of Twenty-five or more, at the price of Forty ($40.00) Dollars per set.

“The party of the second part further agrees to provide a sufficient number of sets of said Code to supply the public demand therefor within the State of Idaho, at a price of Forty ($40.00) Dollars per set, cash on delivery to the purchaser thereof, within the State of Idaho, but the party of the second part shall not be limited to any specific charge for any sets delivered or sold outside the State of Idaho.

“Second party further agrees to secure a copyright on the annotations, references and notes used in the codification provided for herein and to assign the same to the State of Idaho for its use and benefit in the preparation of any • recodification of the laws of the State of Idaho.

“That within five days from and after the execution of this contract the second party shall file with the secretary of the first party a surety company (not a personal) bond in the penal sum of $25,000.00 (which bond shall be subject to the approval of the first party) for the faithful performance of each and all of the terms and conditions of this contract to be done or performed by the party of the second part; that either the failure of the second party to so file said surety bond or the disapproval of said first party of any surety bond so filed shall at once operate to cancel and annul this contract.

“That the chief of the editorial staff of the second party whose name has been filed with, submitted to and approved by the first party shall have the selection of the editorial staff whose duty it will be, among other things, to edit, annotate and index the Idaho 1943 Code as herein provided for; that the said chief of the editorial staff cannot be changed by the second party without the written consent of the said party of the first part; that any change of the Chief of the editorial staff of the second party, without the written consent of the first party shall work a cancellation and annulment of this contract and a forfeiture of the said sum of $25,000.00. ^

“The party of the first part agrees to furnish to party of the second part without cost the following, to-wit: Three complete sets of the “Idaho Code Annotated 1932”; three complete sets of the Idaho Session Laws of the Idaho State Legislature issued since the year 1932, includr ing the Session Laws of 1943.

“In witness whereof, The said party of the first part, acting by and through the said C. A. Bottolfsen, Edwin M. Holden and L. E. Glennon, composing “The 1943 Code Commission”, and the party of the second part have signed and executed this contract in triplicate.

“State of Idaho

"By_

“Governor of the State of Idaho

“By_

“Chief Justice of the Supreme Court of the State of -Idaho.

“By_

“President of the Idaho State Bar.

“Party of the First Part.

“By_

“Party of the Second Part.”

The plaintiffs further allege “that due to labor and war conditions within the meaning and purview of said Exhibit A, the said code has not been completed, and said defendants composing the Code Commission have refused to extend the time until authorized by the Legislature of the State of Idaho so to do.

“That volume one of said Code has been delivered to the State of Idaho and is now in the possession of the Secretary of State, and is in all respects in accordance with Exhibit A hereto, but that notwithstanding said 1,000 bound copies of volume one have been delivered to the Secretary of State, the said Code Commission has declined, neglected, failed and refused to pay therefor.

“That practically all of the editorial work and work of compiling has been done on the entire set of codes and volume two is now in type and part of volume three is set in type, but said work of printing and binding has been held up on volume two awaiting the giving by the Code Commission of authority on the part of some one to read and approve said work and okey the proofs so the same can be printed and bound.

“That volume one of said Code was approved by Sam S. Griffin, Esq., under authority of the Code Commission, but that said Sam S. Griffin has resigned his employment by the Code Commission, and there is no one, insofar as the plaintiffs have been advised, authorized to okey the proofs on said Code so that the same may be completed, and this condition has not obtained for more than three months next before the filing of this complaint.

“That said Code Commission has full power and authority to extend the time and carry out said contract for the publication of the code authorized by Chapter 103 of the Idaho Session Laws of 1943, and that in truth and in fact no further legislation is needed or required for the Code Commission to perform its duties and carry out said contract.

“That after making of said contract, an interest therein was assigned by said Koon to plaintiffs American National Bank and Frank Barmettler, and the plaintiffs now jointly own said contracts and all rights thereunder.

“That said Code Commission contends that the appropriation provided for in said Chapter 103 of the Idaho Session Laws of 1943 will pass into the general fund if expended, but the plaintiffs deny this contention and assert that said appropriation is a special one and will remain to be applied to the purposes set forth in said Chapter 103 and is subject to the provisions respecting unexpended appropriations passing into the general fund.

“That a justiciable controversy exists between the plaintiffs on the one hand and the defendants composing the Code Commission on the other, in that the plaintiffs, contend that the defendants composing the Code Commission have full power and authority to edit, compile and annotate said code, the printing, publication and “binding thereof under and by virtue of the authority conferred upon said Code Commission by said Chapter 103 of the Session Laws of the Idaho Legislature of 1943, but that said defendants composing the Code Commission deny they have such authority and refuse to do anything without some legislative action by the Idaho State Legislature, which is being blocked and prevented from acting through the malicious efforts of said Ralph York and Syms-York Company, all to the great damage and detriment of these plaintiffs.

“That therefore the controversy arises, and these plaintiffs are compelled to enter this Honorable Court and ask .an adjudication, stabilization and fixing of their rights, duties and liabilities along with the rights, duties and liabilities of the defendants.

“That it is impossible for any person other than the plaintiffs to complete this code, for the reason that the plaintiff Barmettler has purchased and now has on hand 45-pound paper sufficient in quantity to complete said code, and in addition thereto has purchased and now has on hand fabricoid binding, materials sufficient to bind said code when completed; that these materials are not now obtainable at all at any place. That the .War Production Board has so restricted the use and disposition of these materials that only 30 pound paper is now permitted, and the binding materials are not obtainable in any quality or quantity whatsoever.

“Wherefore, plaintiffs pray judgment against the defendant Code Commission declaring, fixing and stabilizing the rights of the plaintiffs and duties, rights and responsibilities of said defendants composing said Code Commission, and that it be declared that it is the duty, power and authority of said Code Commission to complete said Code under the present existing authority of Chapter 103 of the 1943 Session Laws, and it be declared to be the duty of said Code Commission to forthwith pay the plaintiffs the sum of Five Thousand and no/100 ($5,000.00) Dollars, in accordance with the terms of said Exhibit ‘A’; that the law with reference to appropriations passing into the general fund be declared inapplicable to the appropriation herein, and that the plaintiffs have such other orders in the premises as shall seem meet and proper to carry into effect the above prayed for declaration of rights and for costs and general relief.”

The defendants have moved the dismissal of the complaint alleging that it fails to state a claim against these defendants and that is the question now before the Court for decision.

The complaint and contract are fully set forth as alleged and necessarily these facts are admitted for the purpose of this hearing on the motion to dismiss.

At the onset the Court is of the opinion that it would be justified in refusing to pass on the merits of this case and declare the rights of the parties, as such declaration would not terminate the litigation or bar the rights under the contract which might hereafter be asserted.

A “declaratory judgment” should settle the entire controversy; that cannot be accomplished in the present action and the Court should dismiss it.

There are, however, more controlling reasons why the motion to dismiss must be sustained. The action filed herein is against the defendants in their individual capacity and not as officers of the State. The defendants were acting as a code commission; they were not acting in their individual capacities. They were the duly authorized officers and agents of the State performing duties imposed on them by the Statute which created the Commission, and accordingly the contract was between the State and the contracting publishers, and the contract so recites.

Any judgment entered in this action would not be binding against the State of Idaho, and certainly the contract sued upon is between the State of Idaho and the plaintiff Koon.

Chapter 103 of the Session Laws of 1943 provides for the compilation of all statutes of the State of Idaho, creating what is designated as the 1943 Code Commission composed of the then Governor of the State of Idaho; one member of the Supreme Court of the State of Idaho, and the then president of the Idaho State Bar, to effect such compilation, and authorizes the Commission to enter into a contract for the compilation thereof.

Section 1 provides for the compilation, annotation and publication of all codes and statutes.

Section 2 provides for a contract for the publication of the statutes and codes authorized.

Section 3 provides for the letting of the contract.

Section 4 provides for the number of sets to be printed and the sale price.

Section 7. provides for the delivery of the Codes to the Secretary of State.

Section 8 provides for the levy of the tax and the tax money to be delivered to the State Treasurer.

Section 9 provides for the issuance of Treasury notes to be signed by the President of the 1943 Code Commission, attested by the Secretary thereof, and to be countersigned by the Treasurer of the State of Idaho.

Section 10 provides that the Treasury notes should be sold by the State Treasurer.

Section 11 provides that the Treasury notes should constitute a contract between the State of Idaho and the owners of any of said Treasury notes.

Section 12 provides that the proceeds of the sale should be placed to the credit of the fund in the hands of the State Treasurer and provides that the State Treasurer should keep a separate account of all moneys collected under the taxes and fees imposed by the Statute.

Section 13 provides for the appropriation out of the State Treasury from these funds for paying for the statutes and the expenses of the Commission.

Any claim for payment for the Codes in question must be presented to the State Auditor and he is permitted only to draw a warrant in payment thereof after such claim has been authorized and approved by the State Board of Examiners. This is the only method by which money can be obtained from the State Treasury. This is fully covered by Chapter 20, Title 65, volume 3, I C A.

Section 10, Article" 5 of the Constitution of the State of Idaho provides that the Supreme Court shall have original jurisdiction to hear claims against the State, and the Supreme Court of Idaho in the case of Pyke v. Steunenberg, 5 Idaho 614, 51 P. 614, held that they will not hear any claims against the State until the same have been passed upon by the Board of Examiners. Also see Curtis v. Moore, 38 Idaho 193, 221 P. 133. In the instant case the defendants could not make payment of the $5000.00 that this Court is asked to declare that it is their duty to make, nor could they make any payment for the codifying of the laws under the contract in question or any of their expenses contracted in doing so except by compliance with chapter 20, I C A, as hereinbefore cited.

Any .action to compel these defendants to pay a claim from a State fund is an action against the State and although these defendants, if they were in Court in their official capacity instead of their individual capacity could approve the claim, yet in the final analysis the suit cannot be entertained against them to force the State to make payment. A suit cannot be brought against them even in their official capacity as representing the State’s action so that any judgment entered against them would compel the State to perform' any obligation of the State.

The Eleventh Amendment of the Constitution of the United States provides as follows:

“The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State or by Citizens or Subjects of any Foreign State.”

This provision of the Constitution cannot be defeated by bringing an action of this kind against the defendants who have no personal interest in the subject matter of the suit, when the relief prayed for against them, if granted, would require them to perform certain acts that are obligations of the State to perform. The defendants herein are not the real parties in interest, any judgment.rendered would of necessity be directly against the State and its moneys. The Constitutional bar provided by the Eleventh Amendment cannot be indirectly set aside by suing the officers of the State individually where the claim for relief is an alleged breach of the State’s contract.

It is well settled that Federal Courts are without jurisdiction to entertain such a suit.

As stated by counsel for appellee in the case of Lankford v. Platte Iron Works, 235 U.S. 461 at page 463, 35 S.Ct. 173, 59 L.Ed. 316: “The case is not one in which it is sought to move the officer through the State but on the contrary the State is sought to be moved through its officers. Of this, the court has no jurisdiction, as it is a violation of the Eleventh Amendment.” Also see: State of Louisiana ex rel. Elliott v. Jumel, 107 U.S. 711, at pages 722 and 723, 2 S.Ct. 128, 27 L.Ed. 448. Ex parte Ayers et al., 123 U.S. 443, at pages 488 and 489, 8 S.Ct. 164, 31 L.Ed. 216. State of Missouri v. Homesteaders Life Ass’n, D.C., 16 F.Supp. 69, at page 71. North Carolina v. Temple, 134 U.S. 22, at page 30, 10 S.Ct. 509, 33 L.Ed. 849.

“As to what is to be deemed a suit against a state, the early suggestion that the inhibition might be confined to those in which the state was a party to the record (Osborn v. Bank of United States, 9 Wheat. 738, 846, 850, 857, 6 L.Ed. 204) has long since been abandoned, and it is now established that the question is to be determined not by the mere names of the titular parties but by the essential nature and effect of the proceeding, as it appears from the entire record.” Ex Parte State of New York et al., 256 U.S. 490, at page 500, 41 S.Ct. 588, at page 590, 65 L.Ed. 1057.

It is contended by counsel for the plaintiffs that through appearance made by the defendants in this action that the defendants in this case have waived the right to urge the action as against the State and that the immunity of the State from suit is a personal privilege and is waived by the appearance filed herein. There is no merit in this contention. “The defendants in the present cases, though officers of the state, are not authorized to enter its appearance to the suits and defend for it in its name. The complainants are not entitled to compel its appearance, for the state cannot be sued without its consent. And the court cannot proceed to the determination of a cause and controversy to which the state is an indispensable party without its presence.” Hagood v. Southern, 117 U.S. 52, at page 71, 6 S.Ct. 608, at page 617, 29 L.Ed. 805.

The motion to dismiss will be sustained and an order will be entered.


source: Caselaw Access Project

author: FORMAN, District Judge.

license: Public Domain

text:
    In re ST. CHARLES HOTEL CO.
    No. 5908a.
    District Court, D. New Jersey.
    March 14, 1945.
    Order Affirmed June 13, 1945.
    See 149 F.2d 645.

      Louis L. Goldman, of Camden, N. J., and J. Hector McNeal, of Philadelphia, Pa., for debtor.
    Thomas H. Munyan, of Atlantic City, N. J., and Charles Gottlieb, of New York City, for creditors, Howard K. Hurwith and Frank K. Vidler.
    George Zolotar and Richard V. Bandler, both of New York City, for Securities and Exchange Commission.
   FORMAN, District Judge.

On December 8, 1944, the St. Charles Hotel Company, a corporation engaged in the business of owning a hotel in Atlantic City, New Jersey, filed a petition for reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. The petition set forth the debtor’s financial condition as of October 31, 1944, and alleged, among other essential allegations, that the petitioner is in need of relief under the provisions of Chapter X, is unable to meet its debts as they mature and is desirous of effecting a plan of reorganization. This Court entered an order upon the same day approving the debtor’s petition, appointing a trustee under bond and setting a date for a hearing to be held at which objections might be made to the retention of the trustee. At the request of the Court the Securities and Exchange Commission was asked to intervene, which it did on December 26, 1944.

An order to show cause entered upon the petition of Howard K. Hurwith, a creditor of the debtor corporation, why the order of the Court entered December 8, 1944 should not be vacated and why the petition of debtor of the same date should not be dismissed, was set down for January 12, 1945, the date of the hearing at which objections to the retention of the trustee might be made.

Howard K. Hurwith and Frank K. Vidler, each a creditor of the debtor corporation and each a holder of First Mortgage bonds, filed separate answers to the debtor’s petition of December 8, 1944 on the 11th day of January, 1945, which deny that the petitioner is in need of relief under Chapter X, and which affirmatively allege (1) that the aforesaid petition was not filed in good faith because the interests of the creditors and stockholders would best be subserved in prior proceedings pending in the Court of Chancery of New Jersey, which proceedings were commenced by the filing on November 29, 1944 of a bill in equity by the holders and owners of First Mortgage bonds by reason of the debtor corporation’s insolvency, and (2) that it was unreasonable to expect that a plan of reorganization can be effected which would adequately protect the interests of the bondholders.

Upon the return date of the order to show cause the Securities and Exchange Commission appeared and entered its opposition. The debtor corporation by its counsel adopted the argument of the Securities and Exchange Commission made at this hearing. The hearing of objections to the retention of the trustee was adjourned until such time as the questions raised in the order to show cause could be determined. The debtor corporation and the Securities and Exchange Commission were given additional time to support their argument in opposition to the application for the vacation of the order of the Court, dated December 8, 1944, and the dismissal of the debtor corporation’s petition of the same date, by means of affidavit proof to be submitted at a final hearing to be held on January 26, 1945.

At the final hearing, the debtor corporation filed an affidavit, by its attorney, J. Hector McNeal, to the effect that the corporation had contemplated reorganization for the past few years and that a petition to be filed under Chapter X was prepared in early October 1944.

In support of its argument, the Securities and Exchange Commission filed an affidavit by its attorney in which the following points were made:

1. That the officers of the debtor corporation had considered instituting voluntary proceedings for reorganization under Chapter X for a number of years and had actually decided to file such a petition in October of 1944;

2. That the debtor corporation has unmortgaged assets amounting to $115,235.70 which will require a consideration of the rights and interests of classes of creditors other than the holders of the First Mortgage bonds;

3. That no proceedings for the foreclosure of the First Mortgage are pending and none has been threatened;

4. That the interests of security holders would best be subserved in these proceedings rather than in the prior proceedings in the Court of Chancery of New Jersey for the reasons:

(a) That the state court proceedings contemplate an equity receivership which Section 77B, 11 U.S.C.A. § 207, and Chapter X of the Bankruptcy Act were designed to improve and supplant;

(b) That judicial supervision is lacking in the state court proceedings and that it does not safeguard the rights, or protect the interests, of public security holders as adequately as the proceedings under Chapter X;

(c) That the state court proceedings do not offer facilities for reorganization contained in proceedings under Chapter X, as, for example, in the case of the approval of a plan of reorganization, it would be necessary in the former proceedings to raise cash to pay dissenting security holders;

(d) That the assets of this debtor corporation would revert to its custody if this court relinquished its jurisdiction because the state court proceedings have not advanced beyond the stage of the filing and service of the bill in equity and no receiver has been appointed;

(e) that there is no assurance that a receiver will be appointed in the state court proceedings in view of certain contested issues, such as assertions of mismanagement by the debtor’s officers and directors, and improper and fraudulent leases.

The debtor corporation, appearing by J. Hector McNeal, stated that it intended to stand or fall on its original petition filed December 8, 1944 and that it did not intend to amend its petition in any way, even though such amendment might be necessary to sustain it and would be allowed by the court.

Section 146 of the Bankruptcy Act, 11 U.S.C.A. § 546, aids in the definition of the term “good faith” as used in the Act. It provides as follows:

“Without limiting the generality of the meaning of the term ‘good faith’, a petition shall be deemed not to be filed in good faith if—

“(1) the petitioning creditors have acquired their claims for the purpose of filing the petition; or

“(2) adequate relief would be obtainable by a debtor’s petition under the provisions of chapter 11 of this title; or

“(3) it is unreasonable to expect that a plan of reorganization can be effected; or

“(4) a prior proceeding is pending in any court and it appears that the interests of creditors and stockholders would be best subserved in such prior proceeding. July 1, 1898, c. 541, § 146, as added June 22, 1938, c. 575, § 1, 52 Stat. 887.” 11 U.S.C. A. § 546.

We shall concern ourselves with a discussion of subsections (3) and (4), for the objecting creditors contend that the facts of this case show that the petition failed, to meet the requirements set forth in those subsections.

The most recent complete expression of the Supreme Court on this subject is contained in the case of Marine Harbor Properties v. Manufacturer’s Trust Co., 1942, 317 U.S. 78, 63 S.Ct. 93, 87 L.Ed. 64. The property of the debtor in that case consisted of an apartment building in New York City subject to a first mortgage of $370,000, junior mortgages and other claims. The property was admittedly worth less than the first mortgage indebtedness. The court held that the debtor petitioning under Chapter X had not sustained the burden which was upon it to show that the interests of creditors and stockholders would be best subserved in the Chapter X proceedings where there was a prior state foreclosure proceeding pending. The court unequivocally places the burden of showing good faith on the petitioner. In the language of the court:

“ * * * it seems clear that when a prior proceeding is pending, a petitioner’s showing of ‘need for relief’ under Ch. X, required to be contained in every petition by the express provisions of § 130(7), imist demonstrate that at least in some substantial particular the prior proceedings withhold or deny creditors or stockholders benefits, advantages, or protection which Ch. X affords. In absence of such a showing the ‘need for relief’ has not been established and the District Court is not enabled to make an informed judgment on the ‘good faith’ issue.” [Italics supplied.] Marine Harbor Properties v. Manufacturer’s Trust Co., supra, 317 U.S. at page 84, 63 S.Ct. at page 97, 87 L.Ed. 64.

The petition filed by the debtor corporation in the instant case contains an allegation of “need for relief” under Chapter X. On its face this allegation may be sufficient, provided it is not attacked, for in such instance, all interested parties in effect submit to the jurisdiction of the federal court and do not question the good' faith of the filing of the petition. However, when attacked, as is this petition, it becomes the burden of such petitioner to demonstrate that its petition is filed in good faith. This petitioner has failed to sustain that burden, for it failed when given the opportunity by the Court to support its petition to show" that it is reasonable to expect that a plan of reorganization could be effected and that, although a prior proceeding is pending in the state court, it appears that the interests of creditors and stockholders would not be best sub-served in such prior proceedings, which were the points upon which it was attacked by the objecting creditors.

In this case the Securities and Exchange Commission attempted to support the debt- or corporation’s petition by shouldering the burden of showing good faith.

The court in which a petition is filed has exclusive jurisdiction of the debtor and its property. 11 U.S.C.A. § 511. It is within the discretion of the court whether the petition should be approved. The court must be satisfied that the petition complies with the requirements of Chapter X" of the Bankruptcy Act and has been filed in good faith. 11 U.S.C.A. § 541. This determination must be based on the proofs. 11 U.S.C.A. §§ 543, 544. The relief offered by the Bankruptcy Act is available to the creditors as well as the debtor. When the jurisdiction of the court is invoked by either, it is within the right of the court, and was in fact intended by Congress, that it should be its duty to consider whatever evidence it deems necessary to base its determination of approval or disapproval of the petition. A bankruptcy proceeding is of necessity one in which the debtor and its property is placed in the hands of the court. The varying interests of many different parties make it essential that in exercising its discretion the court inquire into every phase of the case so as to balance the equities as best it can.

The objecting creditors, Howard K. Hurwith and Frank K. Vidler, contend that the affidavits of the Securities and Exchange Commission may not be treated as an amendment of the petition, for under the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, one party is not permitted to amend another’s pleadings. This position is not tenable for several reasons. As indicated, the Bankruptcy Act does not contemplate that the court should consider the position of each party separately but rather with a view towards an equitable disposition as to all concerned, keeping in mind their respective rights and interrelationships. Its responsibility towards one party is no greater than its responsibility towards another party. Since the debtor or any creditor may invoke the court’s jurisdiction by filing a petition, it follows that any one or more may attempt to sustain the burden of establishing the good faith requirements under which the petition must be filed. The court, in its role as the protector of the rights of all concerned as well as the rights of one against the other, cannot prefer one party over another because that party is more cognizant of his rights and sees fit to act more timely and in his own interests. The action of that party must be considered as if pressed by all those similarly situated where the determination affects the rights and interests of many parties subject to its jurisdiction. As is said by the Supreme Court, “A bankruptcy court is a court of equity, § 2, 11 U.S.C. § 11, 11 U.S.C.A. § 11, and is guided by equitable doctrines and principles except in so far as they are inconsistent with the Act.” Securities and Exchange Commission v. U.S. Realty Co., 310 U.S. 434, 455, 60 S.Ct. 1044, 1053, 84 L.Ed. 1293.

With these considerations as a basis the Court is constrained to the proposition that it must take note of all evidence before it, including argument of counsel, in its determination of good faith under Chapter X. The point made by the Securities and Exchange Commission that there is no necessity to amend a petition in order to sustain it as filed in good faith, and that the issue may be met by oral testimony in the event of a trial, or by affidavit proof if on a motion, is well taken. The petition will be considered as if conformed to the evidence by way of affidavit. Any technical difficulties may be so cured. In re Equity Co. of America, 7 Cir., 115 F.2d 570, cited by Securities and Exchange Commission.

Although the argument was not pressed by the objecting creditors, it should be noted that the debtor corporation in the final analysis declined to amend its petition in any respect. Were this to be considered “lack of prosecution” of the petition by the debtor corporation or even lack of good faith on its part in that respect, the Court would still be entitled to weigh the affirmative proofs offered by other parties and base its good faith determination thereon. The debtor in this case has no equity in the property. Therefore, it is not surprising to find that its interest in the proceeding has lagged. The Court, having obtained jurisdiction by the filing of the petition, is in a position to equitably deal with all parties involved even though many of them are apathetic to their own interests to the extent that none but the objecting creditors appeared, whether by reason of ignorance, laxity, lack of funds or otherwise.

Primarily, the Securities and Exchange Commission was set up to safeguard the rights of the investing public. Securities and Exchange Commission v. U. S. Realty Co., supra. Its recommendations must be considered with that object in mind. In this case the Securities and Exchange Commission serves the useful purpose of presenting to the court an over-all view of the case which embraces the interests of the aforementioned absent parties. The court is bound to recognize all proofs before it in arriving at its determination of good faith. That the Securities and Exchange “Commission is a party in interest and entitled to be heard in all matters cannot be disputed. 11 U.S.C.A. § 608.

The Supreme Court recognizes the relationship of the public interest in bankruptcy and the part which the bankruptcy court plays as a court of equity. This is evidenced by its remarks following those quoted above in Securities and Exchange Commission v. U. S. Realty Co., supra: “A court of equity may in its discretion in the exercise of the jurisdiction committed to it grant or deny relief upon performance of a condition which will safeguard the public interest. It may in the public interest, even withhold relief altogether, and it would seem that it is bound to stay its hand in the public interest when it reasonably appears that private right will not suffer. Pennsylvania v. Williams, supra, 294 U.S. [176], 185, 55 S.Ct. [380], 385, 79 L.Ed. 841, 96 A.L.R. 1166, and cases cited; Virginian R. Co. v. Federation, 300 U.S. 515, 549, et seq, 57 S.Ct. 592, 600, 81 L.Ed. 789.” 310 U.S. 434 at page 455, 60 S.Ct. 1044, at page 1053, 84 L.Ed. 1293.

We conclude that the evidence and argument presented by the Securities and Exchange Commission may be considered in determining whether the petition under consideration meets the requirements of good faith under Chapter X.

Primarily, the Securities and Exchange Commission objects that the application to dismiss the petition of the debtor filed on behalf of the objecting creditors did not particularize grounds for the dismissal of the proceedings on the basis of defects on the face of the debtor’s petition.

The Commission further urges that any issue created by the application by reference in it to the creditors’ answer is one, which the Commission, in its effort to support the debtor’s petition, is entitled to meet “by the introduction of competent proof.”

While the application of the objecting creditors is not artful in its draftsmanship, it sufficiently incorporates the essentials of the answer. The answer affirmatively strikes at the essential of good faith when it sets forth that the interests of the creditors and stockholders can best be subserved in the prior state court proceedings and that no feasible plan for the reorganization of the debtor can be proposed which would provide adequate protection for the bondholders and other creditors.

Ati opportunity was granted to both the debtor and the other parties to file affidavits pertinent to the issue. The debtor corporation and the Commission filed such affidavits and they have been considered. Thus the issue is squarely framed. The Court has before it sufficient material to resolve the issue and make a determination as to whether the petition of the debtor corporation should stand or fall, based upon the full record before the Court which includes the affidavit of counsel for the debtor corporation, the affidavit and argument of counsel for the Securities and Exchange Commission, and the pleadings and arguments of the objecting creditors.

The Supreme Court in the case of Marine Harbor Properties v. Manufacturer’s Trust Co., supra, held that upon the facts appearing therein the burden of satisfying the court of good faith in the filing of the petition was not sustained. Mr. Justice Douglas, who delivered the opinion of the court, pointed out that if there was a need to safeguard junior interests where a prior foreclosure proceeding cannot do so, or a showing that the rights of first mortgagees are being prejudiced or jeopardized in a prior foreclosure .proceeding, even if no showing is made of need for relief by junior interests, such evidence would demonstrate good faith and warrant an approval of a petition. He found that the property being worth less than the amount of the first mortgage indebtedness, it was not apparent that the equity owners would be denied advantages or protection afforded them under Chapter X by the prior state foreclosure proceeding.

In the case at bar the book value of the mortgaged assets is listed at $1,417,819.62 as of October 31, 1944. It is alleged in the debtor corporation’s petition that their value is “in excess of $250,000”. The unmortgaged assets as of the same date amount to $115,235.70. On the liability side the debtor corporation has outstanding first mortgage bonds in the principal amount of $2,380,-500, of which, bonds to the principal amount of $152,500 are held in the treasury of the debtor corporation, leaving bonds in the principal amount of $2,228,000 outstanding in the hands of the investing public. No interest has been paid on these bonds since 1932 and the accrued unpaid interest as of October 31, 1944 totals approximately $2,023,424.41. In addition, the debtor corporation has general mortgage bonds outstanding in the amount of $153,-000, which bonds are also in default since about 1932 and on which there is accrued unpaid interest of approximately $221,793.-30. Preferred stock of the par value of $452,000 and common stock of no par value in the amount of 9144%o shares are also outstanding.

In all, the debtor corporation has outstanding liabilities in the form of bonds and interest thereon in excess of $4,500,000. Its liability upon the first mortgage bonds which are preferred is in excess of $4,-000,000, which is approximately $2,500,000 more than the value of the assets of the corporation as listed on its books.

A fresh contribution in return for “a participation reasonably equivalent to their contribution” must be made in order to admit stockholders into a plan of reorganization which would be fair and equitable. Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 60 S.Ct. 1, 84 L.Ed. 110; Northern Pacific R. Co. v. Boyd, 228 U.S. 482, 33 S.Ct. 554, 57 L.Ed. 931. Applying the facts in the Marine Properties case to the rule it previously laid down in the aforementioned cases, the Supreme Court stated: “That rule obtains under Ch. X as well as under its predecessor, § 77B. There is no suggestion in the record that the equity owners desire to make a contribution on that basis and that unless they are allowed to do it under Ch. X, they will be barred.” Marine Harbor Properties v. Manufacturer’s Trust Co., 317 U.S. 78 at pages 85-6, 63 S.Ct. 93, at page 97, 87 L.Ed. 64.

It must, therefore, be shown that junior encumbrancers, unsecured creditors or stockholders desire to make a contribution as a basis for the issuance of new securities to them if it appears that the debtor corporation has no equity over its first mortgage indebtedness and that their participation cannot be effected as well in the prior proceedings.

It is apparent that any reorganization that is possible under Chapter X in this case could not affect the stockholders or any creditors other than the first mortgagees, unless there is to be a considerable contribution of new capital. There has been no suggestion that such contribution has been, or is being, considered. Consequently, there is no need to safeguard the junior interests or to be cautious in considering plans which may prejudice or jeopardize the rights of those other than the first mortgagees.

It was contended in the Marine Properties case, as it is contended by the Securities and Exchange Commission in this case, that there are numerous safeguards contained in Chapter X that are lacking in the state court proceedings. In that case the Schackno Act of New York, N. Y. Laws 1933, c. 745, Unconsol. Laws N.Y. § 4871 et seq., was involved, whereas we are concerned with proceedings authorized under the New Jersey law in insolvency, receivership and reorganization. Title 14, Chapter 14, Revised Statutes of New Jersey of 1937, N.J.S.A. 14:14. We need not examine the differences between the two procedures, for the Supreme Court fully answers this contention as follows: “Those considerations would be highly relevant and persuasive if this was a case of the usual reorganization proceeding dealing with more than one class of securities under the older procedures which Ch. X was designed to improve and supplant. See Securities and Exchange Commission v. United States Realty & Imp. Co., supra, 310 U.S. [434], at page 448, 60 S.Ct. [1044], 84 L.Ed. 1293; H.Rep. No. 1409, 75th Cong., 1st Sess., pp. 37 et seq. Then the safeguards afforded by Ch. X would have special significance in protecting the respective classes of investors against improvident, unfair or inequitable adjustments, compromises, and settlements — steps which are basic to the reorganization process but which in selfish hands led to much abuse. H.Rep. No. 1409, 75th Cong., 1st Sess., pp. 73 et seq.” Marine Harbor Properties v. Manufacturer’s Trust Co., 317 U.S. 78 at page 87, 63 S.Ct. 93, at page 98, 87 L.Ed. 64.

An objective comparison of Chapter X proceedings and state court proceedings for the purpose of pointing out advantages in the former to show that the interests of the equity holders would be best subserved in the federal courts alone cannot be used to sustain a petition. In most instances the advantages of the federal proceedings have proven to be numerous. But it was not intended that Chapter X should supplant similar state proceedings. To avoid such a result, Congress specifically provided that it must appear that there is a “need for relief” under Chapter X and that the burden of showing such need is upon the one who seeks to sustain the filing of the petition as made in good faith. No specific advantage is advanced to show that this debtor corporation has need for relief under Chapter X. There are no specific facts before the Court to evidence that the interests of creditors and stockholders would best be subserved in these proceedings rather than in the prior state court proceedings.

In the language of the Supreme Court: “In view of the burden on a petitioner to make the showing required by § 130(7) and § 146(4), the bankruptcy court is not warranted in assuming without more that a state foreclosure proceeding instituted for and on behalf of the first mortgage creditors exclusively is inadequate, measured by Ch. X standards, to protect their interests. The contrary course would result in Ch. X making greater inroads on prior proceedings than § 130(7) and § 146 (4) indicate was the purpose.” Marine Harbor Properties v. Manufacturer’s Trust Co., 317 U.S. 78 at page 88, 63 S.Ct. 93, at page 98, 87 L.Ed. 64.

In fact, it appears from the record that if a plan of reorganization is effected it could consist of no more than an equivalent to a foreclosure of the rights of all creditors and stockholders other than the first mortgage bondholders. Whether the corporation be liquidated and the lienors paid off, whether foreclosure proceedings be taken and the property sold to the lienors, or whether the first mortgagees convert their bonds into stock as evidence of their ownership, the effect and net result would be the same — the first mortgage bondholders alone may participate in the proceedings and determine the ultimate form of their holdings. No showing has been made by the debtor corporation or the Securities and Exchange 'Commission, as the proponent of its petition, that this result cannot be obtained in the suit in the New Jersey Court. See N.J.S.A. 14:14, supra.

Our attention has been directed to the case of Fidelity Assurance Ass’n v. Sims, 318 U.S. 608, 63 S.Ct. 807, 87 L.Ed. 1032, wherein the Supreme Court held, among other reasons, that in the light of facts showing that the liabilities of an insurance company which had done business in several states, exceeded its assets by a large sum, it was unreasonable to expect that the company could be reorganized as a going concern. Receivership and liquidation proceedings in state courts having been instituted, the Court declined to permit the application of Chapter X notwithstanding the contention made by the Securities and Exchange Commission in the case that it would insure an orderly liquidation in the interests of all and be advantageous as affording opportunity for impartial investigation of wrong doing by company officers, besides solving problems of marshaling and distribution.

The Securities and Exchange Commission sought to blunt the effect of the Sims case by the pronouncement of the court in the case of Country Life Apartments v. Buckley, 145 F.2d 935. In the latter case the Second Circuit Court of Appeals affirmed the district court in its approval of a plan for reorganization which provided for the sale of the debtor’s property at not less than a given upset price and the distribution of the proceeds among those having an interest therein. The proceedings had progressed to a point where the plan embodying the scheme had been approved by the court without appeal. The objection was raised at the time for confirmation of the plan and by way of an offer of a substitute plan. The court declined to justify the attack upon such a plan as a liquidation and held it to be a reorganization within the contemplation of the Bankruptcy Act, Section 216(10), 11 U.S.C.A. § 616(10). However, this argument does not meet the situation before us because in the Country Life Apartments case there was no challenge of the good faith of the debtor’s petition and1 there was no showing that there were any prior proceedings in a state court.

In the affidavit of J. Hector McNeal, attorney for the debtor corporation, it is alleged that the debtor corporation considered its petition for a number of years prior to filing and had decided to institute this suit before the prior proceedings in the state court had been commenced. This does not aid the argument of the Securities and Exchange Commission. The dates of the filing of the respective petitions are controlling and the state court proceedings here antedate the federal court suit by nine days.

The Securities and Exchange Commission pointed out that the debtor corporation has accumulated a fund of $115,235.70 not covered by the lien of any mortgage, to which various contestants will probably lay claim. Neither this sum nor any forseeable future income is large enough to affect possible plans for reorganization in the light of the size of the lien of the first mortgage bondholders. Notwithstanding the insistence of the Securities and Exchange Commission that .this presents a problem peculiarly for the federal court, there is nothing to indicate that the fund •cannot be adequately and equitably administered by the New Jersey Court of Chancery and distributed to the creditors who are entitled to their respective portions of it.

The Securities and Exchange Commission submitted that there is no prayer in the state court suit for foreclosure, but that it constituted merely a bill in equity for a receiver. We find no materiality in the distinction, for the Marine Properties case has pertinent application to the New Jersey equity proceedings, even though they are not essentially foreclosure proceedings.

The Securities and Exchange Commission suggested that the state court suit consists of nothing more than a petition filed by the objecting creditors in this cause, that no receiver has been appointed therein and that there is no assurance that one would be appointed. Such suggestion can have scant consideration because the injunctive order of this court has interrupted the state court proceedings and prevented a determination on the issues raised therein.

The arguments of the Securities and Exchange Commission that the insolvency of the debtor corporation does not render a plan of reorganization unreasonable, that it is not necessary for stockholders to participate in such a plan, that the insolvency of the debtor corporation is not per se evidence of bad faith and that the statute contemplates that it is the interest of either the creditors or the stockholders that will be b&st subserved, are sound propositions of law, but have no pertinent application in this case.

One of the issues raised by the objecting creditors is that it is unreasonable to expect that a plan of reorganization can be effected which would adequately protect the interests of the bondholders. Upon this challenge the burden of showing it is upon those who seek to sustain the petition under Chapter X. The only proof before the court bearing on this point is the debtor’s statements, contained in the petition, which show assets valued at anywhere from the lowest figure set forth therein ($250,000) to the value as listed upon the books of the debtor corporation ($1,417,819.62), plus a small amount of current assets and investments in actual value, and liabilities in excess of approximately $4,500,000, more than $4,000,000 of which represent outstanding liability on the First Mortgage Bonds. Upon the basis of these uncontroverted statements, without any showing of anticipated contributions of new capital or expectations of any plan or plans of reorganization, we conclude that the burden upon the proponents of the petition in this respect has not been carried and that for this reason the petition “shall be deemed not to be filed in good faith.” 11 U.S.C.A. § 546(3), supra.

On the other issue raised by the objecting creditors the recent case of In re Biltmore Grande Apartment Bldg. Trust, 7 Cir., 146 F.2d 81, is in point. A dismissal of two petitions filed for reorganization under Chapter X for the reason that the petitions did not comply with its requirements and that they were not filed in good faith in that the petitioners failed to susta.n their burden of showing that the interests of creditors and stockholders would best be subserved in the federal proceedings, was affirmed by the Circuit Court of Appeals for the Seventh Circuit as a correct interpretation and application of the principles announced in the Marine Properties case. The following excerpt from the opinion of Judge Duffy, of the Eastern District of Wisconsin, 59 F.Supp. 1000, contains his reasoning in that case:

“The Biltmore property is assessed for taxation at $273,000 ($58,000 for the land and $215,000 for the building). The trustees in their petition for reorganization allege the value to be $315,000, and that there is no equity. In the foreclosure complaint the bondholders allege the value to be $325,000. From the trustees’ report it appears that the average anuual income before depreciation for the years 1940, 1941, 1942 and 1943 was $18,000. Assuming that there may be thirty years of economic life remaining in the building, there would be a capitalized earning value of about $250,000.

“It is apparent that there is no equity beyond the interest of the first mortgage bondholders. The principal of the first mortgage debt is $313,800. Two years of unpaid interest at 6%% amounts to $40,794. Assuming that there has been no waiver of the difference between the 6y2% fixed on the bonds and the 5% actually paid in the past seven years, there would be an additional $32,949 due, or, a total of principal and interest of $387,543. In addition, there are second mortgage notes with accrued interest amounting to $63,572 and notes payable of $15,250. I conclude that the value of the Biltmore property plus the cash on hand is considerably less than the first mortgage debt.

“The circumstances of this case bring it within the rule announced in Marine Harbor Properties, Inc. v. Manufacturers Trust Co., 317 U.S. 78, 63 S.Ct. 93, 87 L.Ed. 64, and In re Cook, 7 Cir., 104 F.2d 981. The burden is on the petitioners to show that pending State court proceedings withhold or deny to creditors or stockholders benefits or protection which Chapter X affords, 11 U.S.C.A. § 501 et seq. They have not done so. Furthermore, there is no showing that the holders of junior lien or unsecured creditors or stockholders desire to make a contribution which would be the only way in which they could participate in a plan of reorganization.”

We believe that the analogy is striking and that the similar facts disclosed in the case at bar are directly within the ruling of the Supreme Court in the Marine Properties case. We further conclude that the proponents of debtor’s petition have not carried the burden of showing that the interests of creditors would best be subserved in the federal proceedings. 11 U.S.C.A. § 546(4).

Debtor’s petition must be dismissed for failure to show the “need for relief” under Chapter X. 11 U.S.C.A. § 530(7).

On notice of settlement an order will be entered dismissing the petition of the debtor and vacating the order of this court entered December 8, 1944 and requiring the Trustee appointed by this court to file an account of all cash and property received, and disbursements made, by him, after the allowance of which account the balance of debtor’s property remaining in his hands shall be by him returned to it.


author: ATWELL, District Judge.

text:
    TIERNEY v. GENERAL EXCHANGE INS. CORPORATION.
    Civ. No. 1389.
    District Court, N. D. Texas, Dallas Division.
    May 8, 1945.

      White & Yarborough, of Dallas, Tex., for plaintiff.
    William H. Neary, of Dallas, Tex., for defendant.
   ATWELL, District Judge.

In May, 1944, the plaintiff purchased a Cadillac automobile for the sum of $3,384, and insured the same against fire, with the defendant. The amount paid for the car was listed in the policy.

On July 10, 1944, the OPA promulgated regulations affecting the “sale” and “delivery” of used cars on a certain 1942 basis.

The automobile, while in excellent condition, was destroyed by fire on August 15, 1944. The OPA regulations fixed the ceiling price of such a car at $1600 without warranty, or, $2,000 with warranty.

The defendant contends that the plaintiff cannot recover an amount in excess of such fixed price.

The policy gives the defendant the right to require the insured to accept replacement. No such offer was made.

There is no provision in the policy which would denominate it a valued contract. There is a provision which provides that the defendant shall be liable to the insured for the value of the property at the time of its loss.

The interesting question, therefore, is, Did the fixing of the ceiling price by the Administrator for one who deals in, or sells used automobiles, fix the value of the car?

We must bear in mind that the War Powers Act, 50 U.S.C.A.Appendix, § 631 et seq., was for the purpose of curbing, lessening and preventing inflation, so far as legislation could or can accomplish that end. In order to make regulations under it legally effective, it was necessary that they should be sufficiently specific to cover the transactions at which they were aimed. The particular schedules pertinent to this study concern the “sale, or, delivery” of used cars. There is no apparent reasonable stretch of the regulations which would cover an “adjustment for insurance” losses. In truth, there is a phrase in the regulations which excepts such efforts from the regulation. Nor is there anything in the Act or regulations which compels the owner of property to dispose of it. The owner who has paid for an automobile and who does not see fit to “sell” that automobile, or to “deal” in it, ought not to be classified as a “seller” or a “dealer” if and when he seeks pay from an insurance company which has collected a premium from him and agreed to pay him for the fire loss of his property. Such an event does not classify him as either a “seller” or a “dealer.” He has not been identified in any of the regulations under the Act, and seems to have been excepted from their operation.

The parties have agreed that if the OPA fixed price does not rule the value, that judgment shall go for the plaintiff for the amount sued for, viz., $3,384, and judgment is accordingly so ordered.


author: MANDELBAUM, District Judge.

text:
    MICHEL & PFEFFER IRON WORKS, Inc., v. ARISTON, Inc.
    District Court, S. D. New York.
    March 9, 1945.

      J. T. Basseches, of New York City (Arthur E. Cooley and Henry Gifford Hardy, both of San Francisco, Cal., of counsel), for plaintiff.
    William J. Graham and Murray & Parker, all of New York City (William J. Graham and Kenneth H. Murray, both of New York City, of counsel), for defendant.
   MANDELBAUM, District Judge.

Defendant moves to dismiss the complaint alleging that it fails to state a claim against defendant upon which relief may be granted and for lack of jurisdiction for failure to name the Commissioner of Patents as a necessary party to the action.

The suit is based upon R.S. § 4915, 35 U.S.C.A. § 63, pursuant to which plaintiff seeks an adjudication entitling it to register a composite trade-mark, and as part of the relief sought desires “an order and decree requesting the Commissioner of Patents to issue and register plaintiff’s said trade-mark.”

The mark plaintiff attempted to register embodied the name “Aristón,” and by reason of opposition by the defendant Aristón, registration was refused the plaintiff by the Examiner of Interference on the ground that Section 5 of the Trade-Mark Act of 1905, 15 U.S.C.A. § 85, bars registration in cases where the mark “consists merely in the name of an individual, firm, corporation, or association not written, printed, impressed, or woven in some particular or distinctive manner.” In the proceedings before the Examiner of Interference the plaintiff was held to be the prior user of the proposed mark. An appeal was thereafter taken by plaintiff to the Commissioner of Patents only from that portion of the Examiner’s opinion that denied registration. On August 24, 1944, the Commissioner of Patents affirmed the examiner of Interference. Neither party has appealed to the United States Court of Customs and Patent Appeals.

The courts have held that an action under R.S. § 4915 is permitted against an opposing party only where interference proceedings were had resulting in a ruling in favor of the opposer as to prior use. Drackett Co. v. Chamberlain Co., D.C.W.D.Pa.1935, 10 F.Supp. 851, affirmed 3 Cir., 81 F.2d 866, certiorari denied 299 U.S. 503, 57 S.Ct. 16, 81 L.Ed. 373.

In the instant case, however, prior use was found in favor of the plaintiff, not the defendant opposer.

The position of the defendant must be sustained under the authority of Drackett v. Chamberlain, supra. As stated by the Circuit Court in that case (81 F.2d 867) :

“The appellee (defendant), on the other hand, is not an adverse party within the meaning of section 4915, since there was no ruling that the trade-marks belonged to it. The bill was properly dismissed for want of jurisdiction.”

Under the circumstances, it is unnecessary to pass upon the question of lack of jurisdiction for failure to name the Commissioner of Patents as a necessary party.

The motion of the defendant must therefore be granted and the complaint dismissed. Settle order.


author: SCHOONMAKER, District Judge.

text:
    UNITED STATES ex rel. MARCUS v. HESS et al.
    Civil Action No. 748.
    District Court, W. D. Pennsylvania.
    May 4, 1945.

      See, also, D.C., 41 F.Supp. 197.
    Marvin D. Power and Margiotti, Pugliese & Casey, all of Pittsburgh, Pa., for plaintiff-respondent.
    Morris Feldstein, of Pittsburgh, Pa., for petitioners.
    Charles F. Uhl, U. S. Atty., of Pittsburgh, Pa., and J. Gregory Bruce, of Washington, D. C. (Francis M. Shea, Asst. Atty. Gen., and Joseph M. Friedman, Sp. Asst, to Atty. Gen., on the brief), for the United States.
   SCHOONMAKER, District Judge.

Judgment was entered in this case against all defendants (except Robert C. Carmack) on March 22, 1941, for $315,100.91, and costs.

An agreement was made between plaintiff and all the defendants — except the above-named petitioners — whereby they paid plaintiff $260,000 and costs, in full satisfaction of said judgment as to all the defendants who contributed to the payment of said sum of $260,000 and costs, with the express understanding that such payment did not satisfy the judgment as to the present petitioners who did not contribute to such payment.

The non-contributing defendants, the petitioners herein, contend that not- • withstanding this reservation, the release signed by plaintiff amounted to a satisfaction of the judgment as to them; and that they are, therefore, entitled to have the judgment satisfied as to them also.

They cite Pennsylvania authorities to sustain their position. In our opinion, they are not controlling. The cause of action sued upon in the instant case arose under Sections 3490-3493 and 5438 of the Revised Statutes of the United States, 31 U.S.C.A. §§ 231-234, and 18 U.S.C.A. § 80. The jurisdiction of this Court is conferred by Sec. 3491 R.S., and continues until the judgment is satisfied.

Therefore we hold that the effect to be given to the release of a part of the defendants, with the reservation of rights against the remaining defendants, is a matter exclusively to be determined by Federal law.

The rule, as applied by the Federal courts, is that tHe release of those defendants who contributed to the payment of a portion of the judgment, with reservation of plaintiff’s rights as to those defendants who did not contribute to such partial payment, does not release or discharge the noncontributing defendants from liability for the remainder of the judgment.

The rule to be applied in this case is thus stated by Associate Justice Rutledge (now Justice of the United States Supreme Court) in McKenna v. Austin, 77 U.S.App.D.C. 228, 134 F.2d 659, on page 665, 148 A.L.R. 1253:

“ * * * Partial satisfaction taken in compromise and release of liability of one or some of the wrongdoers does not discharge the others. * * * ”

Another case in point is Barnett v. Conklin, 8 Cir., 268 F. 177 (Certiorari denied 255 U.S. 570, 41 S.Ct. 375, 65 L.Ed. 791), in which a money-judgment was recovered against defendants for $167,225.88, and one of them paid $100,000. The plaintiff entered into a stipulation releasing the paying defendant from the judgment, but reserved his rights against the other defendants. The court held that plaintiff could recover the balance of the judgment from the other defendants. See also Carey v. Bilby, 8 Cir., 129 F. 203; Tillitt v. Mann, 8 Cir., 104 F. 421; Molyneaux v. Marsh, C.C.Ga., Fed.Cas.No.9703, 1 Woods 452.

The petition of the non-contributing defendants for a satisfaction of the judgment herein will be denied.

Counsel for plaintiff may submit an order accordingly on notice to opposing counsel.