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In re Wil-Low Cafeterias Inc.

April 29, 1940

IN RE WIL-LOW CAFETERIAS, INC. KAFTAN
v.
SIEGEL.



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

Author: Hand

Before SWAN, AUGUSTUS N. HAND, and CLARK, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

This is an appeal by the trustee in bankruptcy of Wil-Low Cafeterias, Inc., from an order of the District Court reversing the disposition by a referee of the claim of Simon Kaftan and allowing it in the sum of $47 against the estate in bankruptcy as an expense of administration.

Kaftan is a member of the Cafeteria Employees Union, Local 302, affiliated with the American Federation of Labor. His claim of $47 is for one week's wages and was held by the District Court to be due in lieu of a vacation with pay. It is said that similar claims are made on behalf of some two hundred other employees of Wil-Low Cafeterias, Inc., so that this is a test case.

On April 20, 1937, a petition for reorganization was filed by the debtor pursuant to § 77B of the Bankruptcy Act, 11 U.S.C.A. § 207. By order of Judge Patterson, of the same date, the debtor was permitted to continue to operate the business. The order, so far as pertinent, reads as follows:

"(7) That said Debtor be, and it hereby is, until the further order of this Court, authorized to continue, manage, and operate the business and properties of the Debtor * * * with full power and authority to carry on, manage and operate the said business and properties of the Debtor * * * ; and to perform the existing contracts of the Debtor, * * * "

"(8) That the said Debtor be, and it hereby is authorized, in its discretion and subject to the approval of this Court, to appoint and employ such managers, agents, employees, servants, accountants, attorneys and counsel as may in its judgment be advisable or necessary in the management, conduct, control or custody of the affairs of the Debtor * * * including authority to make payment of debts entitled to priority and of the wages and salaries of agents, employees, laborers and servants of said Debtor, * * * accrued or to accrue, which are entitled to priority by statute, or which the Debtor shall deem to be necessary or expedient to pay to secure the continuation of their services or to avoid detriment to the working organization of the business."

By the same order, the debtor was also given all the power of a receiver "in cases of this kind" and "all the powers of a trustee appointed pursuant to said Section 77B".

On October 7, 1936, some six months prior to the filing of the petition for reorganization, the debtor entered into a collective bargaining contract with Cafeteria Employees Union, Local 302, wherein the union was recognized by it as the representative chosen by the employees to bargain collectively on their behalf. The contract provided that all of the debtor's employees were to be members of the union and subsequent to the making of the contract more than a majority were members. On May 11, 1938, a further contract was entered into by the debtor with the union, paragraph 28 of which reads as follows: "All full time employees who will have concluded six months' employment during the months of June, July, August, or September shall be entitled to three days' vacation with pay. All full time workers who will have completed one year's employment during the said months shall be entitled to a week's vacation with pay. All vacations shall take place during the months of June, July, August and September but may take place at any other time by consent of the Union and the employer."

The debtor operated under this contract until June 7, 1938, when, because no approvable plan of reorganization had been presented, the debtor was adjudicated a bankrupt, seven of its twelve stores were immediately closed and the employees thereof summarily discharged. A trustee in bankruptcy was likewise appointed to liquidate the business.

The claimant Kaftan, who had worked for the debtor for nine years, was one of the discharged employees. At the time of the making of the order of adjudication and Kaftan's discharge he had received no vacation, though it had been already set for the first of August. Like many of the other employees of the debtor he filed his claim for one week's wages contending that at the time of his discharge on June 7, 1938, he had earned a right under the contract of May 11, 1938, to one week's vacation with pay. Judge Leibell allowed the claim of $47 for one week's vacation with pay as an expense of administration incurred by the debtor while engaged in administering the estate as the claimant had performed a year's service prior to June 1, 1938, and had, therefore, earned the right to the agreed vacation with pay.

The trustee in bankruptcy has appealed, maintaining that the allowance of the claim as an expense of administration was erroneous: (1) because the contract of May 11, 1938, was not made in the ordinary course of business and, therefore, required the approval of the District Court, which had not been given, (2) because the order of Judge Leibell was ambiguous as to the nature of the claim allowed.

We feel no doubt that the order allowed the claim as an expense of administration but without determining its priority as against other expenses of administration incurred by the debtor. Questions of priority as between various expenses of administration will have to be left for adjustment by the bankruptcy court after ...


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