The opinion of the court was delivered by: POLLACK
A creditor of the Estate of Ira Haupt & Co., in Bankruptcy ("Haupt" hereafter) petitions for review and reversal of an order of a court of bankruptcy sustaining its summary jurisdiction to adjudicate a controversy between the Trustee in Bankruptcy and that creditor.
The order was entered on April 25, 1968 after hearings before the Referee on the jurisdictional issue raised by the application of the Trustee in Bankruptcy which seeks to compel the creditor, the Chemical Bank New York Trust Company ("Chemical" hereafter) to surrender and turn over to the Trustee a sum of $993,495.75 with interest.
Chemical did not file a formal written proof of claim in the proceedings and denies that it submitted in any other way to the summary jurisdiction of the court of bankruptcy. The Referee, however, found that the acts and oral statements of Chemical before him were intended as and constituted the filing of a claim by Chemical and were intended as and constituted a consent to bankruptcy jurisdiction to determine controversies between the parties.
The Trustee unsuccessfully urged as a second ground to sustain a finding of bankruptcy jurisdiction that Chemical had caused its dominated wholly owned subsidiary, Office Decorators, Inc. ("ODI" hereafter) to file a proof of claim for $9,328.59 against Haupt, the dividend on which would go to Chemical and that such claim should be treated as one filed by Chemical itself. The Referee found and concluded that ODI is an independent subsidiary and that there is no reason to pierce the corporate veil of this subsidiary and that the proof of claim of ODI should not therefore be treated as filed by Chemical. The Trustee petitions for review and reversal as a matter of law of this part of the Referee's order, claiming that the ruling as to ODI is in error.
Chemical admits that it appeared in court before the Referee as a creditor with the intent to file a proof of claim. However, Chemical asserts that its intent was limited to filing of a claim in a Chapter XI reorganization should the petition therefor, pending at the time, be approved; and that it did not intend nor did it file nor may its acts be construed to amount to the filing of a claim in the bankruptcy which was adjudicated thereafter. Briefly, Chemical contends that a creditor's statement at a hearing before the Referee that its claim might be filed under certain circumstances is not a submission to the summary jurisdiction of a court of bankruptcy for all purposes.
The chronology pertinent hereto appears in the record as follows:
During April and May of 1963 Ira Haupt & Co. a former stockbrokerage firm sold and leased-back its electronic data processing equipment to I. H. Leasing Corp. and its office furniture, fixtures and other equipment to ODI. These purchases were financed by loans from Chemical totalling almost $1-million which were secured by the furniture and equipment leased back to Haupt. ODI was created for this "lease financing" transaction. All of ODI's stock was held by one Samuel Brouner. The contracts gave Chemical a direct claim against Haupt in the event of the insolvency of either ODI or Haupt.
Shortly after it became apparent that Haupt was insolvent in late November, 1963, the New York Stock Exchange, Haupt and certain creditor banks, not including Chemical, attempted to provide for an orderly liquidation. Chemical apparently agreed to cooperate and to raise no objection to the sale of the security for its loan to ODI by the Liquidator of Haupt, one James Mahony. However, Mr. Brouner, ODI's sole stockholder refused to sign the bills of sale unless he were bought out. Mrs. Irene Riebe, a secretarial employee of Chemical was utilized to become the nominal purchaser and registered holder of ODI's capital stock for Chemical's benefit; had Chemical held ODI's stock itself it would have violated state and federal banking laws. Mrs. Riebe also became a director and president of ODI. Mrs. Riebe was indemnified by the bank against any personal liability as stockholder, director and officer of ODI. Two other secretaries of Chemical also became officers and directors of ODI.
In March, 1964, the Stock Exchange relinquished its role in the Haupt liquidation. Thereafter, Chemical set off funds held by it in accounts for Haupt and for the Liquidator against the indebtedness of Haupt to Chemical on the lease financing and other loans. It is these funds that the Trustee seeks from Chemical in the summary proceeding instituted by the Trustee.
On March 23, 1964, three limited partners of Haupt filed an involuntary petition in bankruptcy against Haupt. On March 30, 1964, a petition was filed in the name of the Haupt partnership to effect an arrangement pursuant to Chapter XI of the Bankruptcy Act, 11 U.S.C. § 721. On June 10, 1964, the petition for a Chapter XI arrangement was dismissed before Referee Ryan and on June 26, 1964 Haupt was adjudged bankrupt. It was during the period of these matters that Chemical became a party to the proceedings in the court of bankruptcy, in the following way.
On April 27, 1964, at the first meeting of creditors John W. Barnum, Esq., a member of the firm of Cravath, Swaine & Moore, appeared representing Chemical. The Cravath firm filed a memorandum dated May 4, 1964 in opposition to the limited partners' motion that the Chapter XI petition be dismissed. On May 15, 1964, Mr. Barnum appeared again representing Chemical and the following colloquy ensued:
"The Referee: Mr. Freund? [Attorney for the limited partners]
Mr. Freund: Good morning, your Honor.
Mr. Barnum: I believe some question was raised at the last hearing - I am afraid I was not able to attend - concerning the position of Chemical Bank and whether or not it had filed a proof of claim. I was told that this question was asked by Mr. Freund and I gathered that your Honor was not aware of just what the position of the Chemical Bank was.
Chemical Bank has not in fact filed a proof of claim. They are listed as a creditor in the Rule 11(a) 2 [sic] affidavit filed by the petitioners herein as a creditor in the amount of $719,000. That claim represents a secured claim against two other entities, I. H. Leasing and Arthur [sic] Decorators, and Chemical is working with those two entities to liquidate the assets, and when the exact amount of the claimover against Ira Haupt itself has been determined, Chemical will at that time file a proof of claim in an exact amount, rather than based on these contingencies.
Your Honor, of course, recalls having signed an order permitting Ira Haupt to ...