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IN RE DIAMOND STAR TIMBER CORP.

January 12, 1946

In re DIAMOND STAR TIMBER CORPORATION


The opinion of the court was delivered by: BRENNAN

On November 16, 1945, an involuntary petition in bankruptcy was filed in this Court praying that the Diamond Star Timber Corporation be adjudicated a bankrupt. The corporation defaulted in pleading and was adjudged a bankrupt on December 7, 1945.

By notice of motion dated December 5, 1945, Sylvia Bussell of Brooklyn, New York, a creditor of the bankrupt, moves to dismiss the petition in bankruptcy herein upon the ground that the domicile or principal place of business of the bankrupt was not located within the confines of the Northern District of New York, and that, therefore, this Court had no jurisdiction to entertain the petition or make the order of adjudication. Bankruptcy Act, Sec. § 2, sub. a(1), 11 U.S.C.A. § 11, sub. a(1). The motion came on to be heard on Dec. 17, 1945, the petitioning creditors appearing by their attorney and opposing the motion.

 The question involved in concise. The moving party claims that the bankrupt neither had its principal place of business nor its domicile within the Northern District of New York for the six months preceding the filing of the involuntary petition but the fact the corporation had its principal place of business and domicile at the City of New York, within the Southern District of New York.

 The right of the creditor to make this motion is challenged by reason of the change made in Sec. 18, sub. b of the Bankruptcy Act by the Amendment of 1938, 11 U.S.C.A. § 41, sub. b. In re Carden 2, Cir., 118 F.2d 677.

 The authorities are not in agreement as to whether the requirements of Sec. 18, sub. b are jurisdictional or relate to venue. Collier on Bankruptcy, 14th Ed. Vol. 1, 171, etc. The Court of Appeals for the Second Circuit has held, however, that same are jurisdictional. In re Federman, 2 Cir., 119 F.2d 754.

 The broad powers of the Court in the matter of the entertainment of the motion is expressed in the following quotation:

 'And it has long been the practice of others not entitled to file pleadings or otherwise contest the allegations of a petition, to move for the vacation of an adjudication or the dismissal of a petition on grounds, whether strictly jurisdictional or not, that the proceeding ought not to be allowed to proceed.' Security & Exchange Commission v. U.S. Realty and Improvement Co., 310 U.S. 434, 457-458, 60 S. Ct. 1044, 1054, 84 L. Ed. 1293.

 The motion is, therefore, entertained.

 A brief resume of the facts follows. The bankrupt was incorporated pursuant to the provisions of the Stock Corporation Law of the State of New York, by certificate filed in the Office of the Department of State on November 7, 1941. The principal purposes for which it was formed were to carry on a general lumber, tanning and milling business; to hold timber lands, to buy, cut, sell and ship timber, lumber and kindred products, to own and operate mills and equipment necessary for the handling of logs and timber, to borrow money for use in the business of the company, and to do all things necessary or proper to carry out the purposes detailed in the certificate.

 The certificate also contains a provision in the paragraph which designates the Secretary of State as the agent of the corporation upon whom process may be served that ' * * * that the office of the corporation shall be located in the City of New York, * * * .' Meetings of stockholders and directors may be held at any place within or without the State of New York.

 The nature and extent of the bankrupt's business operations do not appear until August 31, 1943, when the City Financial Corporation entered into an agreement with the bankrupt to finance its business. Thereafter, it loaned to the corporation over $ 700,000, the major portion of which was secured by accounts receivable assigned by the bankrupt to the City Financial Corporation. These transactions were consummated at the City of New York at the office of the bankrupt which consisted of a three-room suite, occupied by the president and two employees. The bankrupt maintained its bank accounts at financial institutions located at New York City. At least two chattel mortgages covering equipment were executed by the bankrupt at the City of New York.

 Sometime prior to the 18the day of September, 1944, the bankrupt owned and operated a lumber mill at Brasher Falls, New York, which is within the Northern District of New York. Just when this property came.into the possession or under the control of the bankrupt does not appear, but the affidavit of Mr. Chambers shows his continuous employment by the bankrupt at the above place from September 18, 1944, to September 29, 1945. The property consists of approximately five acres of land, the saw mill equipment located in a building thereon, described as a mill, and another building upon the same premises which has been designated as an office and upon which the painted sign of the bankrupt appears. The mill was used in lumber manufacturing operations and was in actual operation for three or four months prior to September, 1944. It is inferred that standing timber was purchased by the bankrupt; was cut, removed to the mill, sawed into lumber and shipped. The actual amount of lumber processed is in dispute, but the most reliable evidence from the acting manager at the mill is that there was manufactured upwards of one-half million board feet.

 The number of employees at the mill does not appear, with certainty, but it is evident from the operations described in the affidavits that there were a number of such employees.

 On October 8, 1945, a visit was made by Mr. Chambers to the New York office which he described as consisting of three small rooms containing three or four desks and some filing cabinets. No business was being transacted, although there appeared to be two young ...


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