Summary
In Rockmore v. New Jersey Fidelity Plate Glass Insurance Co., 2 Cir., 65 F.2d 341, 342, the defendant insurance company wrote liability insurance under a contract with a brokerage company covering the taxicabs of the M.C.T. Company, a subsidiary of the Parmalee Transportation Company. The contract provided for insurance for all subsidiaries of the Parmalee company, and further provided that various companies would deposit with the insurance company, subject to the joint control of the insurance company and the brokerage company, amounts sufficient to cover all claims, such deposits being termed a "joint loss fund."
Summary of this case from Schaffer v. HughesOpinion
No. 207.
June 5, 1933.
Appeal from the District Court of the United States for the Southern District of New York.
Suit by Max Rockmore, as trustee in bankruptcy of the M.C.T. Company, Inc., against the New Jersey Fidelity Plate Glass Insurance Company and another. From a decree dismissing the bill of complaint on defendant's motion for want of jurisdiction because of lack of diversity of citizenship, complainant appeals.
Affirmed.
This case comes up on a motion by the defendants to dismiss the bill of complaint. The complaint contained the following allegations:
That M.C.T. Co., Inc., was a corporation of the state of New York. That on February 13, 1932, a petition in bankruptcy was filed against it, that on the 9th of March, 1932, it was adjudicated a bankrupt, and on the 3d of May, 1932, the complainant was appointed trustee in bankruptcy of its property.
That the defendant New Jersey Fidelity Plate Glass Insurance Company (hereinafter called New Jersey Fidelity) was a corporation organized under the laws of New Jersey, and that the defendant Alpha Brokerage Corporation (hereinafter called Alpha) was a corporation organized under the laws of the state of New York.
That M.C.T. Co., Inc., was, prior to bankruptcy, engaged in the business of running taxicabs in the city of New York and was a subsidiary or affiliate corporation of the Parmalee Transportation Company, a Delaware corporation. That Alpha was acting as an intermediary or agent for M.C.T. Co., Inc., and for other affiliate and subsidiary corporations of Parmalee Transportation Company.
That on December 1, 1930, Alpha, on behalf of M.C.T. Co., Inc., entered into an agreement with New Jersey Fidelity, whereby the latter agreed to write all taxicab bonds required under the Highway Laws of the state of New York, and Alpha agreed to place with the New Jersey Fidelity all taxicab bonds required by the subsidiary or affiliate corporations of the Parmalee Transportation Company, including M.C.T. Co., Inc., covering taxicabs operated in the city of New York.
That the agreement further provided that Alpha agreed to cause all principals on the bonds to deposit from time to time in a fund to be known as "Alpha-Jersey Joint Loss Fund" an amount sufficient to discharge all outstanding liabilities under the bonds to be written thereunder. That such joint loss fund should be deposited in a bank or banks to be agreed upon and should be subject to disbursement only on the joint order of New Jersey Fidelity and Alpha.
That the funds in the "Alpha-Jersey Joint Loss Fund" in excess of $50,000 should be invested and reinvested from time to time in securities approved by New Jersey Fidelity and Alpha, and the securities when acquired should be deposited in a safe deposit box in their joint control. That, in addition to the loss fund above provided for, Alpha should procure and deliver to New Jersey Fidelity an indemnity agreement guaranteed by Parmalee Transportation Company from each of the principals on the bonds. That, in the event any of the principals on the bonds be adjudicated a bankrupt, New Jersey Fidelity should have the option of taking over the defense of any pending or threatened suit against such principal with full authority to settle the same at any stage and to pay its share of any judgment therein.
That, in pursuance of the agreement, M.C.T. Co., Inc., delivered to its agent Alpha, from time to time, moneys which were deposited in the "Alpha-Jersey Joint Loss Fund," so that at the time of the adjudication in bankruptcy and of the date of the filing of the petition in bankruptcy against M.C.T. Co., Inc., there was in the "Alpha-Jersey Joint Loss Fund," in cash and securities, the total aggregate sum of approximately $327,000 which remained undisposed of, and which was contributed to the fund by the said M.C.T. Co., Inc. That by virtue of the adjudication, the complainant, as trustee in bankruptcy, became entitled to the cash and securities aggregating approximately the sum of $327,000, which sum the complainant, as trustee in bankruptcy, duly demanded, and which the defendants refused to turn over.
That complainant demanded judgment requiring the defendants to turn over to him as trustee in bankruptcy of M.C.T. Co., Inc., the cash and securities in the "Alpha-Jersey Joint Loss Fund."
The defendants moved to dismiss the bill upon the ground that the court was without jurisdiction in that the requisite diversity of citizenship was not shown to exist, and Judge Bondy, before whom the motion came, dismissed the bill. From that decree the complainant has taken this appeal.
Arthur Leonard Ross, of New York City, for appellant.
Raiemond E. Dee, of New York City, for appellee New Jersey Fidelity Plate Glass Insurance Company.
Kaufman Weitzner, of New York City (Samuel H. Kaufman and Emil Weitzner, both of New York City, of counsel), for appellee Alpha Brokerage Corporation.
Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
The M.C.T. Co., Inc., of which the complainant-appellant is the trustee in bankruptcy, was a New York corporation, and the defendant Alpha Brokerage Corporation was incorporated in the same state. If jurisdiction of the District Court depended on diversity of citizenship, and Alpha Brokerage Corporation was an indispensable party to the suit, jurisdiction was lacking and the bill of complaint was properly dismissed.
The appellant contends that the District Court erred in dismissing the bill because:
(1) Jurisdiction did not depend on diversity of citizenship.
(2) If jurisdiction did depend on diversity of citizenship, there was diverse citizenship between the bankrupt corporation and New Jersey Fidelity and Alpha Brokerage Corporation was only a formal and not an indispensable party.
A bankruptcy court may adjudicate conflicting rights to property in the actual or constructive possession of the trustee, either in a summary proceeding or in a suit brought in the United States District Court. While such conflicting rights are ordinarily adjudicated in the bankruptcy proceeding itself, the form of the remedy is not important. Whether the trustee institutes a summary proceeding or a suit in equity, in either event he is invoking a remedy in a bankruptcy court in a controversy arising in bankruptcy proceedings. Central Republic Bank Trust Co. v. Caldwell (C.C.A.) 58 F.2d 721, at page 731; In re Rockford Produce Sales Co. (C.C.A.) 275 F. 811; Jones v. Blair (C.C.A.) 242 F. 783. In the present case, the trustee has filed a bill in equity to recover property alleged to belong to the bankrupt and to be in the possession of its agents. He asserts that he is vested with title to and is in constructive possession of cash and securities representing the contributions of the bankrupt to the "Joint Loss Fund." Were such the case, he undoubtedly could proceed to have his rights determined in the bankruptcy court and would not be obliged to establish diversity of citizenship in order to invoke federal jurisdiction. Bankruptcy Act, § 2 (11 USCA § 11). But the present suit is not a "proceeding in bankruptcy" relating to property in the actual or constructive possession of the trustee. It is rather an ordinary suit between the trustee and an adverse claimant.
The contract between New Jersey Fidelity and Alpha is incorporated in the bill of complaint and shows that the deposits by M.C.T. Co., Inc., were to indemnify New Jersey Fidelity for losses under the insurance policies which it had written. There is nothing to indicate that liabilities under these policies are not still outstanding. It is alleged that the trustee in bankruptcy has demanded that the defendants New Jersey Fidelity and Alpha turn over to him cash and securities representing the $327,000 contributed by M.C.T. Co., Inc., and that the defendants have refused to do this. Their refusal and the terms of the contract under which the deposits were made indicated that they were holding the property under an adverse claim and warrant the conclusion that they were not holding it as mere bailees or agents. Moreover, New Jersey Fidelity and Alpha contend that the contributions by M.C.T. Co., Inc., were not merely to secure New Jersey Fidelity against outstanding claims upon policies written for M.C.T. Co., Inc., but were to secure it also against claims upon policies underwritten for subsidiary corporations of Parmalee Transportation Company. The agreement that all the contributions should be deposited in a "Joint Loss Fund" and the words: "Alpha-Jersey Joint Loss Fund" used in the contract tend to support this construction. The contentions involve serious questions of law. We do not attempt to solve the questions of law and fact suggested by the refusal to turn over the fund, but hold that the answers are not so obvious as to render the contentions of the defendants merely "colorable," or to take defendants out of the class of adverse claimants against whom the trustee could not invoke summary relief. In re Midtown Contracting Co. (C.C.A.) 243 F. 56; In re Iroquois Utilities (C.C.A.) 297 F. 397.
The trustee argues that Alpha is not in the position of an adverse claimant because of the allegation of the eighth article of the complaint that it was "acting as an intermediary or agent of M.C.T. Co., Inc., and for other affiliated subsidiary corporations of * * * Parmalee." But the contract made Alpha in some respects a trustee not only for M.C.T. Co., Inc., but for the other subsidiaries of Parmalee, and imposed upon it the duty of causing the principals upon the bonds from time to time to deposit amounts sufficient to discharge all outstanding liabilities, and required it to maintain custody and control and to see to the proper investment and distribution of the "Joint Loss Fund" for the benefit of all interested parties. Its relation plainly was different from that of a mere agent for the bankrupt, with a revocable authority, which death or bankruptcy of the principal would terminate. Upon the facts set forth in the complaint, both New Jersey Fidelity and Alpha were adverse claimants against whom proceedings brought in the bankruptcy court merely as such would not lie. To invoke the jurisdiction of the District Court in such circumstances, diversity of citizenship had to be alleged between the bankrupt M.C.T. Co., Inc., and each defendant. Jaquith v. Rowley, 188 U.S. 620, 23 S. Ct. 369, 47 L. Ed. 620; Mueller v. Nugent, 184 U.S. 1, 22 S. Ct. 269, 46 L. Ed. 405; Stiefel v. 14th Street Broadway Realty Corporation (C.C.A.) 48 F.2d 1041; In re Horgan (C.C.A.) 158 F. 774.
Section 23b of the Bankruptcy Act (11 USCA § 46(b), provides that suits between a trustee in bankruptcy and adverse claimants concerning property claimed by the trustee can be maintained only "in the courts where the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them if proceedings * * * had not been instituted." But suits under section 60b (11 USCA § 96(b), section 67e (11 USCA § 107(e), and section 70e (11 USCA § 110(e), are excepted from the general provisions of section 23 that limit jurisdiction to courts in which the bankrupt might have brought suit. The sections and subdivisions excepted relate to suits to recover unlawful preferences made within four months of bankruptcy, suits to recover property transferred with intent to hinder, delay, and defraud creditors and suits to set aside transfers which any creditor might have avoided. The present suit is not one belonging to any of those classes. It therefore can be maintained in a federal court only if the bankrupt might have brought it there. It must fail because M.C.T. Co., Inc., and the defendant Alpha are each New York corporations, so that diversity of citizenship is lacking. Such diversity is necessary to support federal jurisdiction and, without it, the trustee must proceed in the state court. Salem Trust Co. v. Manufacturers' Finance Co., 264 U.S. 182, 44 S. Ct. 266, 68 L. Ed. 628, 31 A.L.R. 867; Gage v. Carraher, 154 U.S. 656, 14 S. Ct. 1190, 25 L. Ed. 989; Wilson v. Oswego Township, 151 U.S. 56, 14 S. Ct. 259, 38 L. Ed. 70; Matthew v. Coppin (C.C.A.) 32 F.2d 100; Perez v. Canadian Land Fur Co. (D.C.) 14 F.2d 181; Danks v. Gordon (C.C.A.) 272 F. 821.
The appellant finally seeks to sustain jurisdiction on the ground that diversity of citizenship existed between the bankrupt and New Jersey Fidelity, and Alpha was but a formal party whose presence would not deprive the court of jurisdiction. We cannot accede to the suggestion that Alpha was a mere formal party. It had joint control over the "Joint Loss Fund" and was bound to exercise its supervision over any distribution in the interest of all parties including M.C.T. Co., Inc., and other contributing subsidiaries of Parmalee. In such circumstances it was an indispensable party. Massachusetts S. Construction Co. v. Cane Creek, 155 U.S. 283, 15 S. Ct. 91, 39 L. Ed. 152; Wilson v. Oswego Township, 151 U.S. 56, 14 S. Ct. 259, 38 L. Ed. 70. Its situation differed from that in Salem Trust Co. v. Manufacturers' Finance Co., 264 U.S. 182, 44 S. Ct. 266, 68 L. Ed. 628, 31 A.L.R. 867, where the depositary was a mere stakeholder.
Here Alpha was a fiduciary having, with New Jersey Fidelity, possession of the "Joint Loss Fund" of which the contributions of M.C.T. Co., Inc., were a part, and likewise having responsibility for its investment and control over its distribution. We think Alpha was an indispensable party. Moreover, even if Alpha was not an indispensable party, it had been charged with obligations to invest the fund and to supervise its distribution. This would seem to have given it a personal interest in the controversy and to have made it more than a nominal or formal party. In such a situation diversity of citizenship must exist to confer jurisdiction. Levering Garrigues Co. v. Morrin (C.C.A.) 61 F.2d 115, at page 121; Matthew v. Coppin (C.C.A.) 32 F.2d 100; Devost v. Twin State Gas Electric Co. (C.C.A.) 250 F. 349.
Decree affirmed.