The opinion of the court was delivered by: DIMOCK
This is a petition to review an order of a referee in bankruptcy denying the debtor's petition for reconsideration of a proof of claim. The referee denied the application on the ground that it would not be equitable to permit reconsideration in view of the fact that the debtor had delayed for over five years to file the petition and, in the meantime, the claimant had died. It is the correctness of that determination that is before me.
The provision of law which petitioner invoked was section 57, sub. k of the Bankruptcy Act, 11 U.S.C. § 93, sub. k, which reads as follows:
'Claims which have been allowed may be reconsidered for cause and reallowed or rejected in whole or in part according to the equities of the case, before but not after the estate has been closed.'
The first question is whether a referee's order denying reconsideration of a claim is ever reviewable. Collier says that it is not, 3 Collier on Bankruptcy, 14th Ed., Sec. 57.23, p. 313. The reasoning of the Circuit Court of Appeals for this circuit in In re Jayrose Millinery Co., 93 F.2d 471, is so clearly to the contrary that I must reject Collier's statement. In the Jayrose case a district judge had denied what the appellate court for the purpose of argument treated as an application under section 57, sub. k for reconsideration of the allowance of a claim. A tax claim of the City of New York had been allowed but denied priority. The city had claimed that this amounted to an allowance in part only and had sought reconsideration. The Court of Appeals considered exhaustively the question whether an appeal from the District Court's denial of reconsideration of the claim was governed by section 24, sub. b or section 25 of the Bankruptcy Act as amended May 27, 1926. 44 Stat. 662, chap. 406, 11 U.S.C. §§ 47, 48. The Court of Appeals reached the conclusion that a trustee in bankruptcy had an absolute right of appeal to the Court of Appeals under section 25 from a district court's denial of a petition for reconsideration of the allowance of a claim. The possibility that the denial of such a petition was not reviewable at all was not even considered. The assumed state of facts on which the Court of Appeals based its conclusions in the Jayrose case differs from the case at bar in only two respects: (1) the Court of Appeals was considering review sought by a trustee in a conventional bankruptcy proceeding rather than sought by a debtor in a Chapter XI proceeding, and (2) the review considered was review by appeal to the Court of Appeals from a district court order denying reconsideration rather than review by petition to the district court for review of a referee's order. Neither of these differences is significant and the conclusion of the Court of Appeals in the Jayrose case is authority for the reviewability of a referee's order denying a debtor's petition under section 57, sub. k for reconsideration of the allowance of a claim.
In re Woodley Men's Shop, D.C.E.D.N.Y., 46 F.Supp. 827, aff'd. sub nom. Goldstein v. Wolfson, 2 Cir., 132 F.2d 624, is not to the contrary. There the trustee opposed the original allowance and after the expiration of the ten day period for appeal sought to relitigate the question by an application for reconsideration under section 57, sub. k. The application for reconsideration was denied. In the case at bar, no objection was made to the original allowance. The question was first presented to the court upon the application for reconsideration.
Since the referee's order denying reconsideration is reviewable I must pass to the merits.
The ground upon which the referee refused to reconsider the allowance of the claim was the delay of five years in moving for reconsideration coupled with the death of the claimant in the meantime. The facts are these:
Before the debtor had filed its petition for an arrangement under Chapter XI of the Bankruptcy Act, 11 U.S.C. § 701 et seq., an alleged joint meeting of its stockholders and directors was held. The validity of this meeting is in question. At the meeting compensation of $ 40,000 per annum was voted to one Albert F. Adair, treasurer of the corporation and the original claimant. The same meeting authorized him to draw upon the funds of the corporation. Adair thereafter withdrew for himself the sum of $ 37,810.21 and withdrew for a firm identified with the debtor's vice president the sum of $ 32,799.43.
Thereafter and on January 20, 1947, Adair brought suit in the Circuit Court of Buchanan County, Missouri, against the debtor for $ 43,285.04 based upon compensation for a little more than a year at $ 40,000 per annum and disbursements expended amounting to $ 2,035.04. The claim was based not only on express contract but also on quantum meruit. The debtor's property was attached.
Thereafter, and on February 4, 1947, the debtor filed its petition under Chapter XI. No receiver was appointed and the debtor became and has remained a debtor in possession.
Adair's suit in Missouri was stayed by orders of this court and on May 27, 1947, he filed a claim based upon the same demands except that the disbursements sought were only $ 1,714.73 making a total of $ 42,548.39. Although debtor let it be known that it did not consider Adair to be a creditor, it filed no formal objection and the claim was allowed.
On June 20, 1947, the debtor began a turnover proceeding in this court to obtain an order that Adair return the sum of $ 37,810.21 which he had withdrawn for himself. This proceeding was based upon the allegation that the meeting at which Adair was authorized to withdraw funds of the debtor was unlawful.
In addition to the turnover proceeding the debtor, in February 1949, brought an action in Missouri against the bank that had honored the checks by means of which Adair had paid himself $ 37,810.21 and the vice president's company $ 32,799.43.
On January 26, 1951, the referee delivered an oral decision in the turnover proceeding ruling that the debtor had failed to establish that Adair had possession of any part of the $ 37, 810.21 that was the subject of the proceeding. Three days later, before an order could be entered, Adair died and, in April 1951, an order was entered by the referee dismissing the turnover proceeding on the ground that the petition had abated. In April 1952 the action against ...