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July 29, 1958

FOX THEATRES CORPORATION, Defendant. Application of Kenneth STEINREICH and Leopold Porrino, As Trustees of the Assets which were of Fox Theatres Corporation, and on behalf of the beneficiaries of their Trust, comprising the creditors and stockholders of Fox Theatres Corporation, now known respectively as Preferred Participants and Participants of said trust, Petitioners, v. Ruby SCHINASI, Bankers Trust Company, Solomon Leon Schinasi, also known as S. Leon Schinasi, and Betti Schinasi Goldsmith, as Trustees under the Last Will and Testament of Leon Schinasi, Deceased, Respondents

The opinion of the court was delivered by: BRYAN

This is an application in the nature of a summary proceeding made in an equity receivership commenced in this court in 1932.

On January 30, 1939 an order was entered in this receivership confirming a plan proposed by the equity receiver for the realization upon and liquidation of the assets of the defendant corporation. Pursuant to this realization plan all the assets of the receivership and of the defendant corporation were transferred to and vested in trustees under a deed of trust for the benefit of the creditors and stockholders of the corporation. The deed of trust, executed as of February 24, 1939, was duly filed with the County Clerk of New York County and supervision over the administration and enforcement trust instrument in the Supreme Court, New York County. Trustees duly designated have been carrying out the terms of the trust under the supervision of that court ever since. The petitioners here are the present trustees.

 The respondents are the trustees under the will of and successors in interest to Solomon Schinasi, the owner of real property on East 13th and East 14th Streets known as the Academy of Music property, who leased these premises in 1916 to William Fox Realty Corporation, a New York Corporation, for a term of forty-two years from November 1, 1916 to October 31, 1958. During the term of the lease, and pursuant to its provisions and those of a simultaneously executed building agreement, the lessee erected upon the leased premises the Academy of Music Theatre and a business building.

 The petitioners now claim that, as trustees of Fox Theatres Corporation which presently owns all of the capital stock of William Fox Realty Corporation, they are the owners of the buildings erected upon the leased premises by the latter corporation. In substance, they ask this court, in this summary proceeding, to declare that they and the respondents are owners in common of the fee and the buildings and equipment on the premises, and that the court order the sale of the property and the equitable division of the proceeds unless the respondents agree to pay them the fair and reasonable value of the buildings and equipment as fixed by the court.

 The respondents have filed an answer denying that the petitioners have any interest in or right to the buildings and equipment at the expiration of the lease, and setting forth in full the lease of the premises and the building agreement which is incorporated therein. They now move to dismiss the petition for insufficiency, lack of jurisdiction, defect of necessary party and lack of authority to sue. Petitioners, in turn, have moved to strike certain defenses interposed in the answer as insufficient in law.

 Respondents' first ground of attack on the petition is that this court has no jurisdiction over the subject matter. In order fully to understand the contention which they make it is necessary to review briefly some of the history of this troublesome and disturbing equity receivership.

 At the outset of the receivership Chief Judge Manton of the Court of Appeals of this circuit designated himself as district judge for the purpose of assuming jurisdiction over it and all proceedings were conducted before him. In 1938 investigations were commenced of the judicial conduct of Judge Manton which culminated in his indictment for conspiracy to obstruct justice and his eventual conviction and sentence on these charges. See United States v. Manton, 2 Cir., 107 F.2d 834, certiorari denied 309 U.S. 664, 60 S. Ct. 590, 84 L. Ed. 1012.

 Before all this had come to light, however, Judge Manton had confirmed the plan for realization upon and liquidation of the Fox Theatres assets which has been previously mentioned, and the plan had been consummated. All assets had been turned over to duly designated trustees, participating certificates had been issued to the creditors and stockholders and the trust was in effect and operating for their benefit in accordance with its terms under the jurisdiction of the Supreme Court, New York County. This plan was described by the court as one 'which would terminate the equity receivership, but which contemplates continued liquidation of the corporate assets'. The trust set up was analogous to a corporation set up to distribute the assets of a receivership estate and is performing similar functions.

 The plan and the trust set up thereunder have never been set aside and their validity is not in question. Indeed, the petitioners here derive their status to bring this proceeding solely from their position as duly designated, qualified and acting trustees of the trust.

 Prior to the presentation of the realization plan the receiver had sold all of the capital stock of William Fox Realty Corporation, together with the Academy of Music lease which is the subject of the present application, to Skouras Theatres Corporation which was the sublessee of the Academy of Music Theatre from the Realty Corporation. This sale was approved by an order of Judge Manton entered on January 12, 1937.

 The investigation of Judge Manton's activities brought into question certain of the Fox Theatres receivership transactions. In the spring of 1939 the United States Attorney, at the request of Chief Judge Knox of this court, began an investigation of such matters with the assistance of Robert Aronstein, the attorney for one of the substantial receivership creditors. On August 13, 1940 an indictment, which never came to trial, was filed against various persons, charging a conspiracy to bribe Judge Manton in connection with his order of January 12, 1937, approving the receiver's sale of the Fox Realty Stock and Academy of Music lease to Skouras Theatres. Proceedings in the equity receivership to set aside the sale upon the ground of fraud ensued. On June 27, 1944 and order was entered by Judge Knox approving a settlement under which all of the property conveyed by the receiver to Skouras Theatres Corporation upon such sale pursuant to the order of June 12, 1937, together with certain cash payments, was returned to the realization plan trustees for the benefit of the Fox Theatres creditors.

 Judge Manton's order confirming the realization plan had directed that the successive equity receivers file their accounts with the court and had reserved jurisdiction 'to make from time to time such other and further orders in these proceedings as it may deem proper' The surviving receiver, who had proposed the plan, and the prior receivers through him, filed accountings pursuant to these directions. Nathan A. Smyth, Esq., was appointed by Judge Knox as special master for the purpose of taking testimony on the objections. After testimony had been taken before him settlements were effected with the receivers and with the sureties of deceased receivers providing for the payment of substantial sums to the trustees which were approved by the court. Upon consummation of these settlements the receivers and their sureties were discharged by orders of the court dated November 27, 1945 and March 19, 1946 respectively.

 On May 1, 1946 Judge Knox entered an order enlarging and extending the scope of the hearings theretofore authorized before Mr. Smyth as special master 'to hear evidence and take testimony concerning all transactions had by the receivers herein respecting or pertaining to the assets of Fox Theatres Corporation and its subsidiary and affiliated corporations'. The order further provided that Robert Aronstein, who had assisted the United States Attorney in his investigation of the receivership and had been a main moving party in setting the Skouras sale aside and in objecting to the accounts of the receivers, was authorized to present evidence before the special master. Continuation of hearings before the special master was authorized by Judge Knox on May 7, 1952. On May 6, ...

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