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IN RE SWAN-FINCH OIL CORP.

August 28, 1967

In the Matter of SWAN-FINCH OIL CORPORATION, Keta Gas and Oil Company, Swan-Finch, Petro Chemical Corporation, Debtors. George C. LEVIN, as Trustee in Reorganization of the Estates of Swan-Finch Oil Corporation, Keta Gas and Oil Company and Swan-Finch Petro Chemical Corporation, Plaintiff,
v.
RUBY TRADING CORPORATION, Lowell M. Birrell, Herbert A. Birrell, Harry Casper, Lois B. Morrill, Peter Jakobson and Peter Jakobson Corporation, Defendants



The opinion of the court was delivered by: PALMIERI

In Consolidated Proceedings for the Reorganization of Corporations

 PALMIERI, District Judge.

 This plenary action was brought in 1962, pursuant to Chapter X of the Bankruptcy Act by the trustees in reorganization of certain corporations once controlled by Lowell Birrell. It was dismissed with prejudice by this Court in April, 1966, following approval of a settlement in a written opinion dated April 13, 1966. The case was settled for $175,000, $100,000 of which has already been paid, with the remaining $75,000 due to be paid in October, 1967.

 The Government is now seeking to acquire, as a priority tax lien creditor of Lowell Birrell, all the monies derived from this settlement in excess of administrative expenses and legal fees. In addition to the Government, the claimant Continental Bank & Trust Company, as receiver of Inland Empire Insurance Company, asserts rights to the fund as a creditor of Lowell M. Birrell.

 The bone of contention in the litigation was a luxury apartment building on Park Avenue in New York City, owned and actively managed for a number of years by Herbert A. Birrell, brother of Lowell Birrell. A substantial mortgage interest in the property was held by Lois B. Morrill, a married daughter of Herbert Birrell, who was added by the trustee as a party to the litigation. The defendants Peter Jakobson and Peter Jakobson Corporation, along with Mrs. Morrill, actively litigated the case. The Jakobsons appear to have had all their dealings with Herbert Birrell, first as his real estate manager, or "net lessee" and later, during the course of the litigation and as a result of contractual arrangements entered into in Canada, as his "contract-vendee." Neither Lowell Birrell nor Herbert Birrell became active litigants. Lowell Birrell appeared solely to challenge the qualification of the Judge and Herbert Birrell remained in Canada, answering with a general denial in December, 1965. The defendant Casper was a nominal party.

 The relationships of the various parties to the litigation have been set forth in prior decisions of this Court. *fn1" The case has been before the Court of Appeals for the Second Circuit on three occasions: in 1963 (citation footnote 1), in 1964 (Levin v. Ruby Trading Corp., 2 Cir., 333 F.2d 592), and in 1965 (352 F.2d 508). On the last occasion the Court of Appeals, noting that the temporary receivership had been instituted nearly three years before and that no trial had yet been held, affirmed an order refusing to terminate the receivership, but directed that the receivership "be dissolved unless plaintiff brings the action to trial within four months from the date of this opinion." *fn2" (Supra, 352 F.2d at page 509.)

 Thereafter, and as a result of intensive settlement negotiations, in some of which the Court participated at the request of the parties, settlement of the litigation was effected. It was formally approved in an opinion and subsequent order of this Court during April, 1966.

 The settlement monies came entirely from Peter Jakobson and Peter Jakobson Corporation; no other party was obliged to contribute any part of the settlement funds. Indeed Lowell M. Birrell, whose alleged property interest in the settlement fund is asserted by the Government as the basis for its claim, took no part in the settlement negotiations and at no time asserted that he had an interest in the real estate or the mortgages. Similarly, Herbert Birrell declined to take any active part in the proceedings, remaining in Canada throughout the litigation. His deposition as a witness was taken in Canada at the instance of Lois B. Morrill, Peter Jakobson and Peter Jakobson Corporation. *fn3"

 Neither the United States nor the Continental Bank & Trust Company, which lay claim to the settlement fund, ever participated in the litigation in any way. Although the litigation has been pending for many years and has been well-publicized, their first appearance occurred after the settlement was effected and solely for the purpose of asserting claims to the settlement monies.

 The decision of this Court sustains the position of the trustee that the settlement fund is not property of Lowell M. Birrell on which his creditors' rights can fasten.

 The findings of fact and the conclusions of law which follow are intended to amplify what has already been said, and to demonstrate that the claims against the fund now asserted by the United States and by the Continental Bank & Trust Company lack validity and must be denied.

 FINDINGS OF FACT

 The Parties

 1. This plenary action was commenced in August of 1962 by the then trustees in the reorganization proceeding pursuant to Chapter X of the Bankruptcy Act.

 2. The action was pursued by successor trustees and since December 30, 1964, by George C. Levin, Esq., as sole successor trustee.

 3. The original complaint was superseded by a supplemental complaint dated July 16, 1963, which was filed and served solely to add Lois B. Morrill as a party defendant.

 4. Service of the complaint was effected upon all of the defendants *fn4" to the action except ...


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