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In re Retail Chemists Corp.

August 1, 1933

IN RE RETAIL CHEMISTS CORPORATION; IRVING TRUST CO.
v.
CLIMAX RUBBER CO. ET AL.



Appeal from the District Court of the United States for the District of Connecticut.

Author: Hand

Before L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

Retail Chemists Corporation, a New York corporation, filed a voluntary petition in bankruptcy in the United States District Court for the Southern District of New York on July 27, 1932. On the same day the Irving Turst Company was appointed and qualified as receiver in bankruptcy and continued to act as receiver until August 12, 1932, when its election as trustee in bankruptcy was approved by the referee.

Until shortly before the bankruptcy proceedings, the bankrupt corporation had been known as the Whelan Drug Company and had owned and operated a chain of drug stores known as Whelan Drug Stores located in some thirteen states, including ten stores in Connecticut. About a month before the petition was filed, there had been organized a Delaware corporation called the Whelan Drug Company of Delaware, Inc., to which the bankrupt transferred all the stores that were to continue in operation, in consideration of which the Delaware company assumed all the debts of the bankrupt and issued to the bankrupt all its capital stock. Thereupon local Whelan companies were organized to operate the stores in their respective states, including a Whelan Drug Company, Inc., organized under the laws of Connecticut, to which the Delaware company transferred the ten stores operating in Connecticut, and which issued to the Delaware company all of its capital stock except shares to the value of $1,000 which the Delaware company had already acquired for cash. As a result of these transactions, the bankrupt owned all the stock in the Delaware company, which in turn owned all the stock of the Connecticut company, which owned the stores.

On August 30, 1932, on motion of the trustee in bankruptcy, an order was entered in the United States District Court for the Southern District of New York declaring that all of the above-mentioned transfers were null and void under sections 67e, 70a (5) and 70e of the Bankruptcy Act, 11 U.S.C. §§ 107 (e), 110 (a) (5), (e), 11 USCA §§ 107 (e), 110 (a) (5), (e), that the transfers of the property in Connecticut were void under the laws of that state, and declaring that title to all the assets of the Delaware company and the local companies should vest in the trustee in bankruptcy. It is conceded by the trustee on this appeal that the transfers of the Connecticut stores did not comply with the Connecticut Bulk Sales Law, Conn. Gen. St. 1930, § 4703.

On July 28, 1932, Abraham D. Slavitt presented in the United States District Court for the District of Connecticut a petition for the appointment of an ancillary receiver in bankruptcy of the Retail Chemists Corporation, alleging that he was the attorney for Climax Rubber Company, a creditor of the bankrupt, and that it was necessary for the preservation of the bankrupt's estate within the district that an ancillary receiver should be appointed. Upon this petition, the District Judge made an ex parte order that A. S. Albrecht, of Hartford, Connecticut, be appointed receiver within the district. On August 11, 1932, Irving Trust Company as receiver submitted a motion to vacate the appointment of the ancillary receiver, to which Slavitt filed exceptions. A verified petition by the Irving Trust Company as trustee and former receiver was then submitted, attached to which was an affidavit of Jacob Stein, reciting that he was the sole proprietor of the Climax Rubber Company, doing business in New York City, that he was a creditor of the bankrupt, and that he had not authorized any one to use his claim as the basis for a petition for the appointment of an ancillary receiver of the Retail Chemists Corporation in Connecticut. The District Judge granted a hearing upon this motion on August 22, 1932, which he denied in the order appealed from dated October 5, 1932. On October 10th, the trustee filed a petition for leave to appeal in the District Court, and subsequently a motion for an order allowing an appeal was granted by this court.

The trustee contests the validity of the action of the District Court in refusing to vacate its order appointing an ancillary receiver upon the ground that no facts were alleged or proved from which it could be found that the appointment of an ancillary receiver was necessary for the preservation of the estate, and upon the ground that the application for such appointment was not made by a party in interest, since Stein had denied that Slavitt had authority to use the Climax Rubber Company's claim as the basis for a petition. Briefs in support of the order have been filed by attorneys for A. S. Albrecht, the ancillary receiver, and by Slavitt both on his own behalf and for the Climax Rubber Company. There has also been filed in this court an affidavit of Jacob Stein, stating that he has not authorized the filing of a brief for the Climax Rubber Company on this appeal.

The first ground for reversal urged by the appellant we do not need to discuss at length. In Re Hayes (D.C.) 192 F. 1018, at page 1019, it was said that: "In granting an ancillary receivership the court ordinarily looks at nothing except the pendency of a proceeding in the parent district, the appointment there of a receiver, and the presence of assets in the district where the application is made."

The appellant nevertheless contends that the appointment of an ancillary receiver is subject to all the requirements which govern the appointment of a primary receiver pursuant to section 2 (3) of the Bankruptcy Act (11 U.S.C. § 11 (3), 11 USCA § 11 (3), which states that receivers may be appointed "in case the courts shall find it absolutely necessary, for the preservation of estates, to take charge of the property of bankrupts after the filing of the petition and until it is dismissed or the trustee is qualified."

Some provisions of the Bankruptcy Act which in terms apply only to primary receivers have been construed to apply equally to ancillary receivers. Stanton v. Busch (C.C.A.) 59 F.2d 669; In re Concentrated Products Corporation (C.C.A.) 38 F.2d 745. General Order in Bankruptcy 51, promulgated by the Supreme Court May 15, 1933 (11 USCA § 53), requires that petitions for the appointment of ancillary receivers shall contain "a detailed statement of the facts showing the necessity for such appointment. * * *" But we need not here determine whether petitions for the appointment of ancillary receivers need set out such facts as were required in order to justify the appointment of primary receivers, or, if so, whether the petition in the present case meets the requirements, for we think the order must be reversed on the other ground relied upon by the trustee.

The only evidence that Slavitt had any authority to use the claim of Climax Rubber Company is contained in a letter dated July 28, 1932, to Slavitt, signed by Theresa Levy as secretary of the Manufacturer's and Wholesalers' Board of Trade, 286 Fifth avenue, New York City, in which it is stated that:

"This will confirm our telephone conversation regarding applying for ancillary proceedings in the matter of the Retail Chemists Corporation.

"We have many claims but as I told you over the telephon, I spoke to Mr. Morton Frederick's office and you can verify it if you find it necessary, by calling him who authorizes the use of the ...


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