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IN RE CONEY ISLAND HOTEL CORP.

December 24, 1934

In re CONEY ISLAND HOTEL CORPORATION


The opinion of the court was delivered by: GALSTON

GALSTON, District Judge.

The debtor, having filed a petition for relief under section 77B of the Bankruptcy Act (11 USCA § 207), seeks possession of its property known as the Half Moon Hotel, located in Coney Island, borough of Brooklyn, from James J. McLoughlin, receiver of the debtor corporation. The debtor also seeks to restrain the superintendent of insurance of the state of New York from proceeding with a reorganizationn of the debtor corporation, and for an order requiring the said superintendent of insurance to file in this court a list of all the names and addresses of certificate holders owning an interest in a certain mortgage to which reference will hereafter be made.

The debtor is a New York corporation. Its principal asset is the Half Moon Hotel. On September 15, 1926, the debtor corporation executed and delivered to the Title Guarantee & Trust Company its bond in the principal sum of $1,000,000, or so much thereof as should be advanced, secured by a mortgage upon the Half Moon Hotel. The mortgage matured on October 1, 1934. Against the bond and mortgage, the title company advanced a total of $750,000, and other parties advanced $100,000; the latter holding a junior participation in the mortgage. Thereafter the interest of the title company was reduced to $690,000, and that of the junior holders increased to $160,000. As against the $690,000, the title company issued certificatesof participation to 244 individual persons. The aggregate of their holding is $688,500.

 With the issuance of these participation certificates, the Bond & Mortgage Guarantee Company issued its policy guaranteeing to the holders the payment of principal and interest upon that portion of the mortgage loan against which the certificates had been issued. As part consideration for the guaranty, the mortgage company was made the agent of the insured until the payment of the bond and mortage, with the right to collect the interest and principal of the bond, and to exercise various other rights described in the guaranty policy.

 Other liens against the property include a second mortgage in the principal sum of $310,000, and another in the principal sum of $514,690.11. It is thus seen that the aggregate of all the mortgage liens is $1,664,690.11. Paramount, however, to these liens are tax liens in the sum of $98,810.50.

 The interest in arrears upon the $690,000 mortgage totals $110,200.

 On June 9, 1933, the Bond & Mortgage Guarantee Company commenced an action to foreclose the first mortgage in the Supreme Court of the state of New York, county of Kings. In that action, on June 10th, James J. McLoughlin was appointed receiver of all the rents and profits of the mortgaged premises. The receiver accordingly took possession of the mortgaged premises, and is now in possession thereof. That action is now at issue, but has not proceeded to a judgment of foreclosure and sale.

 On August 2, 1933, the superintendent of insurance was appointed rehabilitator of the Bond & Mortgage Company under an order of the New York Supreme Court, county of Kings, in a special proceeding brought by him for the purpose of taking possession of the property of, and rehabilitating, the mortgage company.

 Acting pursuant to section 6 of chapter 745 of the Laws of 1933 of the state of New York, as amended by Laws 1934 (Ex. Sess.) cc. 906, 919 (frequently referred to as the Schackno Act), on October 31, 1934, the superintendent of insurance instituted a special proceeding for the purpose of securing judicial approval of a plan of reorganization of the mortgage investments in the aforesaid mortgage.

 On November 16, 1934, the petition herein was filed pursuant to the provisions of section 77B, and on November 21, 1934, an order was made herein approving the petition as properly filed in apparent good faith.

 I shall deal first with the motion to restrain the proceedings of the state superintendent of insurance under the Schackno Act. The motion is vigorously opposed on a number of grounds, all of which require discussion.

 It is asserted that this court has no power to enjoin the superintendent of insurance from performing his duties under valid New York statutes. It is asserted that the District Court has no power to enjoin him except upon the ground that the statutes under which he is acting are unconstitutional or that he is acting beyond the scope of his authority. Reliance is had upon Harkrader v. Wadley, 172 U.S. 148, 19 S. Ct. 119, 43 L. Ed. 399; Hawks v. Hamill, 288 U.S. 52, 53 S. Ct. 240, 77 L. Ed. 610; Kelley v. Kavanaugh (D.C.) 3 F. Supp. 666; De Pauw University v. Brunk (D.C.) 53 F.2d 647.

 It is also said that the Eleventh Amendment to the Federal Constitution prohibits suits against a state and against state officers. In re Ayers, 123 U.S. 443, 8 S. Ct. 164, 31 L. Ed. 216.

 None of these cases is pertinent, and the argument advanced ignores the provisions of article 1, § 8, of the Constitution, which empowers Congress to establish uniform laws on the subject of bankruptcy throughout the United States. Accordingly, national bankruptcy statutes are paramount ...


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