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Syracuse Engineering Co. v. Haight.

March 4, 1940


Appeal from the District Court of the United States for the Northern District of New York.

Author: Clark

Before SWAN, CLARK, and PATTERSON, Circuit Judges.

CLARK, Circuit Judge.

The appellant herein, a creditor having a judgment lien against Julian S. Brown, appeals from Brown's adjudication as an involuntary bankrupt on the grounds (1) that there were not three petitioning creditors with provable claims and (2) that the alleged bankrupt was not insolvent.

The creditors of Julian S. Brown have been fighting over his considerable estate for nine years. Brown himself is not disposed to help them; with an annual income in excess of $20,000 under a trust, their efforts to tie up his other assets have not proven too embarrassing to him. An attempt of one creditor group to set up a receivership for Brown proved abortive. He was then placed in involuntary bankruptcy, but the petition was dismissed and we affirmed. In re Brown, 2 Cir., 87 F.2d 306. A second involuntary petition resulted in an adjudication. We vacated that ruling for errors below, and remanded the proceedings for a new hearing. Syracuse Engineering Co., Inc. v. Haight, 2 Cir., 97 F.2d 573.It is from the adjudication made after the new hearing that this appeal is taken.

The questions now before us resolve themselves in the main into problems of valuing assets and liabilities, i.e., decisions of fact made on sharply disputed testimony produced at an extensive trial. There is no reason to believe that we can reach any sounder results than did the district judge who was familiar with this estate from long association with it, as well as with the local conditions in and around Syracuse, where the physical assets are located. That an objecting creditor can so long prevent administration of an estate while he endeavors to preserve his priority perhaps indicates the wisdom of the change made in the bankruptcy statute by the Chandler Act in omitting creditors from those who may plead in answer to an involuntary petition. Section 18, sub. b, 11 U.S.C.A. § 41, sub. b. These long drawn out proceedings have engendered hard feeling among counsel, leading to unsupported charges of bad faith in the briefs wholly out of place in appellate argument.

First, however, we must note appellant's claim that two of the three original petitioners did not have provable claims as required by § 59, sub. b, 11 U.S.C.A. § 95, sub. b. The District Court supported one of these claims on disputed testimony; while the other, asserted to be barred by the statute of limitations, was not so barred when the petition was filed. But their statuts becomes academic here, since between the last appeal to this court and the new hearing below, two additional creditors with unquestionably valid claims have been allowed to intervene and join in the petition. Creditors who intervene before adjudication may be counted in determining whether the necessary three petitioning creditors exist. Canute S.S. Co. v. Pittsburgh & West Virginia Coal Co., 263 U.S. 244, 44 S. Ct. 67, 68 L. Ed. 287. Appellant's only reply is that the requests to intervene should never have been granted. It would appear that under § 59, sub. f, intervention to join in an involuntary petition is a matter of right, Canute S.S. Co. v. Pittsburgh & West Virginia Coal Co., supra; Guterman v. C.D. Parker & Co., 1 Cir., 86 F.2d 546, certiorari denied, 300 U.S. 677, 57 S. Ct. 670, 81 L. Ed. 882, though compare In re Brown, supra, 87 F.2d at page 308. Even if the granting of leave to intervene is discretionary, we have said that we will not upset the ruling of the District Court except for clear cause shown. In re Tidewater Coal Exchange, 2 Cir., 280 F. 638, certiorari denied, Delaware S.S. Co. v. New England Coal & Coke Co., 259 U.S. 584, 42 S. Ct. 587, 66 L. Ed. 1075. No satisfactory reason has been presented why intervention should not have been allowed here.

We turn next to the issue of Brown's solvency. The alleged act of bankruptcy is that Brown, while insolvent, permitted the present objecting creditor, Haight, to obtain a lien against his property by judicial proceedings - the lien which Haight is here trying to preserve - and failed to discharge it within thirty days thereafter. Bankruptcy Act, § 3, sub. a (3), 11 U.S.C.A. § 21, sub. a (3). Since Brown consented to examination, the burden of proving insolvency, as we ruled before, rests on the petitioning creditors. Syracuse Engineering Co. v. Haight, 2 Cir., 97 F.2d 573, 575. Whether the burden would fall on the objecting creditor if Brown had refused to undergo examination, we declined to decide on the last appeal, and we decline again. In any event, we think petitioners have this time sustained their burden.

The parties are apart to the extent of almost $900,000 in their claims as to the values in this estate. Petitioners assert assets of a trifle over $116,000, and liabilities of $388,000. The objecting creditor appraises assets at about $800,000, and liabilities at $183,452. The trial court took a middle course, with a finding of $204,000 in assets, and $319,000 in liabilities. To overrule the district judge, we must therefore find aggregate error (and in one direction only) of $115,000 in his valuations.

Liabilities. The largest single liability is the judgment of $131,641.97 in favor of the objecting creditor. We need consider only three other items; the validity of all the rest cannot be seriously questioned. These three are claims asserted against Brown for deficiencies under mortgages on which he was personally obligated.The mortgage debt owed to the Thalheimer estate was $123,000. Under N.Y. Civil Practice Act, § 1083-a, a deficiency judgment could be taken only for this sum less the fair market value of the property. A witness for petitioning creditors appraised fair market value at $65,000; appellant claims a value up to $180,000. The District Court arrived at a figure of $73,000, and placed Brown's deficiency liability at $50,000.

Two other deficiency claims are asserted by the First Trust & Deposit Co., which holds the Pack and Schumacher mortgages. The court found the claim against Brown on the Pack mortgage to be at least $5,000. Evidence for the petitioning creditors showed that the correct sum might even be $9,000. The Schumacher mortgage was a second mortgage, and the previous foreclosure of the senior mortgage had left no surplus. Brown was surety on the second mortgage, but his principal had no assets. Consequently the District Court found Brown liable for the full mortgage debt of $67,500.

We shall not reverse any of these findings.The evidence was sharply conflicting; nothing in the record persuades us that the court's estimates were erroneous. Certainly they were not "clearly erroneous," as they must be to justify reversal. Federal Rule of Civil Procedure 52(a), 28 U.S.C.A. following section 723c; cf. In re Connecticut Co., 2 Cir., 107 F.2d 734; In re United Finance Corp., 7 Cir., 104 F.2d 593, 598.

Assets. Except for the trust fund to be discussed below, most of the assets of Julian S. Brown were parcels of real estate in the City of Syracuse. What we have said above applies equally to the District Court's appraisals of these properties. We accept its figure of $154,000 for all assets exclusive of the trust fund.

The principal dispute now, as on the former appeal, concerns the trust fund created by Julian S. Brown's mother for the benefit of Julian and his brother and valued at more than $1,000,000. By the terms of the will creating the trust, each brother receives one-half the income until he reaches the age of 60, at which time he receives one-half the principal; but if one brother dies before becoming 60, the entire principal goes to the other upon attaining that age. No provision is made for the contingency that both die before 60; but it is agreed that the principal will then pass in equal parts to the estates of the two brothers as sole distributees. At the time of the adjudication Julian S. Brown was 49 and his brother was 51. The expectancy that a man of 49 will live for 10 years is about 84 per cent by the American ...

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