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IN RE HUNTER HOTEL ENTERPRISES

May 1, 1941

In re HUNTER HOTEL ENTERPRISES, Inc.


The opinion of the court was delivered by: HULBERT

HULBERT, District Judge.

Petitioner seeks to review an order of a Referee in Bankruptcy denying its motion to impress a lien.

In 1936 Markwell Operating Corp. became liable to the City of New York for sales tax in the sum of $220 based upon a transfer to it of certain furniture and fixtures by one Jacob Goldhirsch.

 In 1940, the Markwell Operating Corp. transferred its assets to the debtor which assumed and agreed to pay the debts of the transferor. The City of New York taxed, as sales, the transfers of Goldhirsch to the Markwell Operating Corp., and the Markwell Operating Corp. to the debtor, which filed a petition for an arrangement pursuant to Chapter XI of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq.

 The City of New York filed two claims against the debtor asserting priority. The tax imposed upon the transfer to the debtor from the Markwell Operating Corp. has been allowed as a preferred claim in the sum of $148, plus interest, and paid. The obligation of the Markwell Operating Corp. to pay the tax due upon the transfer to it by Goldhirsch and assumed by the debtor was allowed as a general claim by Referee's order dated Oct. 29, 1940. The city petitioned for a review of said order which on Dec. 10, 1940 was affirmed by Judge Mandelbaum. 44 F.Supp. 613. In his opinion he stated that his decision did not preclude the city from asserting any rights it might have to an equitable lien on the assets transferred by Markwell Operating Corp. to the debtor as a creditor of Markwell Operating Corp.

 Meanwhile, in order to expedite the consideration of an arrangement, the Referee suggested or directed the debtor to deposit the sum of $220, the amount of said claim, and $65 interest thereon, in escrow. Such deposit was made with the Comptroller of the City of New York.

 The City of New York opposed the confirmation of the plan at a hearing thereon January 7, 1941, in so far as it adversely affected the city's rights. According to the petitioner, the Referee stated that the city was protected by the escrow deposit and an order of confirmation was entered.

 Thereafter, and before the expiration of the city's time to appeal from said order of confirmation, the city moved by petition before the Referee to impress a lien upon the assets of the debtor. This application was denied upon the ground that the court lacked jurisdiction to entertain the city's application after the entry of the order of confirmation, but regardless of the question of jurisdiction the Referee held that the city's application lacked merit in that by filing its proof of claim for taxes owed by the Markwell Operating Corp., "the City with knowledge of the fraudulent transfer by Markwell to the debtor elected to file a claim for money owed by the debtor upon the basis of an assumption of Markwell's liability, and obtained allowance of its claim without priority. In doing so it made an effective election of remedies between its right to undo the transfer and its right to recover the debt from the transferee. In re Jacob Berry Co. [2 Cir.] 174 F. 409; Korns v. Thomson [& McKinnon, D.C.] 22 F.Supp. 442."

 Thereupon the Referee made an order that the application for a lien be denied and that the City of New York return said sum of $285 to the debtor.

 It is this order which the city seeks to review.

 I am of the opinion that the Referee erred in holding that the court lacked jurisdition.

 Title 11 U.S.C.A. § 769 reads as follows:

 "The court shall in any event retain jurisdiction until the final allowance or disallowance of all debts, affected by the arrangement and not barred by the ...


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