Before Clark*fn*, Smith and Hays, Circuit Judges.
J. JOSEPH SMITH, Circuit Judge.
Appellant Armende Lesser filed a two-part claim in bankruptcy against the estate of Michael Misuirello. The first part of the claim is based on a series of 21 notes of the M.A.M. Realth Corporation, and endorsed prior to delivery by Misuirello individually. The second part of the claim is based upon a series of 23 notes of Irving Kell, also endorsed by Misuirello individually. The Referee in Bankruptcy granted the Trustee's motion to expunge Lesser's entire claim, holding that Misuirello had been discharged on the Kell notes and that suit on the M.A.M. notes was barred by res judicata . The United States District Court for the Southern District of New York, David N. Edelstein, J., entered an order sustaining the Referee's decision on the M.A.M. notes, but reversing and remanding Lesser's claim on the Kell notes for further factual findings. Lesser appeals from that part of the District Court's order which sustains the expungement of his claim on the M.A.M. notes, while the Trustee has cross appealed from that part of the District Court's order which reverses and remands to the Referee the claim on the Kell notes.
We are faced with the threshold question of our jurisdiction to hear this appeal. The District Court's order, partially sustaining the Referee's decision and partially reversing and remanding the case for further evidence, is interlocutory in character, for it did not terminate the litigation or finally determine the rights of the parties. Hillcrest Lumber Co. v. Terminal Factors, Inc., 281 F.2d 323, 325 (2 Cir. 1960). Section 24, sub. a of the Bankruptcy Act vests this court with jurisdiction to hear appeals from only those interlocutory orders entered in "proceedings in bankruptcy"; interlocutory orders entered in "controversies arising in proceedings in bankruptcy" are not appealable without some jurisdictional basis, independent of the Bankruptcy Act. Hillcrest Lumber Co. v. Terminal Factors, Inc., supra. However, not every interlocutory order entered in a "proceeding in bankruptcy" is automatically appealable. The order must dispose of some asserted right, and an order which is not "a formal exercise of judicial power affecting the asserted rights of a party" is not appealable. 2 Collier on Bankruptcy 792 (14th ed. 1962).
That part of the District Court's order which reverses the Referee because his findings were not supported by the record and which remands the matter to him for further evidence is not appealable even if entered in the course of a bankruptcy proceeding, for it does not determine with finality any substantive issue in dispute between the parties. Dutch American Mercantile Corp. v. Eighteenth Ave. Land Co., 302 F.2d 636 (2 Cir.1962). The Trustee's cross appeal is dismissed.
On the other hand, that part of the order which expunges Lesser's claim as to the M.A.M. notes does determine with finality a substantive issue in dispute between the parties. And it was entered in a "proceeding in bankruptcy," for it concerns an administrative question between the bankrupt and a creditor in the ordinary course of administration of the bankrupt's estate. See 2 Collier on Bankruptcy 737, 738 (14th ed. 1962). It is therefore appealable under § 24, sub. a, and we must turn to the merits.
Michael Misuirello, the bankrupt, was the president and sole stockholder of the M.A.M. Realty Corporation. On July 28, 1958 the corporation issued a series of 21 promissory notes of $125 each, payable to Lesser. Misuirello signed the notes on the face as president of the corporation, and personally endorsed them on the back prior to delivery to Lesser. Lesser then endorsed and assigned the notes to Henry Sylvern. The first four notes were paid, but the M.A.M. Corporation defaulted on the remainder. In January of 1959 Sylvern brought suit in the Municipal Court of the City of New York against the M.A.M. Corporation and the bankrupt. However, the bankrupt was not served and did not appear as a party to the action in his individual capacity. But he did appear as a witness for the M.A.M. Corporation and controlled M.A.M.'s defense. The M.A.M. Corporation set up three defenses. The substance of the first and second defenses was that the notes were secured by fraud and without consideration; the substance of the third defense was that Lesser and Sylvern had agreed to hold the M.A.M. Corporation harmless on the notes. The M.A.M. Corporation also impleaded Lesser pursuant to § 193-a of the New York Civil Practice Act. In its third party complaint the M.A.M. Corporation asked that if judgment were rendered in favor of Sylvern on the notes, M.A.M. Corporation should recover the amount of the judgment from Lesser. Lesser denied all of the allegations in the third party action.
After a two day trial, the Municipal Court dismissed Sylvern's complaint with the following cryptic comment:
"During the trial, Plaintiff's attorney promised to submit further evidence to prove his case. This, he failed to do. In addition, the Plaintiff, Henry Sylvern, failed to appear and testify at the trial."
Though it is impossible to tell the grounds for the decision, the dismissal of the complaint by the Municipal Court operated as a judgment on the merits since there was no indication in the decision that the dismissal, which came after a full trial, was without prejudice. N.Y.Civ.Prac.Act § 482*fn1 M.A.M.'s third party complaint against Lesser was dismissed with the following explanation:
"I deny the motion of the third party defendant Armende Lesser to dismiss the complaint of the third party plaintiff, M.A.M. Realty Corporation, and since there has been no recovery by the Plaintiff Henry Sylvern against the Defendant M.A.M. Realty Corporation, the complaint of the defendant-third party complainant M.A.M. Realty Corporation is, therefore, dismissed against the third party defendant Armende Lesser."
The decision was affirmed without opinion by the Appellate Term of the Supreme Court, First Department, and no ...