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TEXAS CONSUMER FIN. CORP. v. FIRST NATL. CITY BANK

October 11, 1973

TEXAS CONSUMER FINANCE CORPORATION, Debtor-in-Possession, and Theodore Mack, Designee of the Creditors' Committee of Texas Consumer Finance Corporation, Debtor-in-Possession, Plaintiffs,
v.
FIRST NATIONAL CITY BANK, Defendant


Gurfein, District Judge.


The opinion of the court was delivered by: GURFEIN

GURFEIN, District Judge:

This is a motion pursuant to Fed. R. Civ. P. 12(c) for judgment on the pleadings dismissing the complaint on the ground that the plaintiffs may not maintain this action as a matter of law. The plaintiffs are Texas Consumer Finance Corporation (TCFC), the debtor in a Chapter XI arrangement proceeding in the Northern District of Texas, and Theodore Mack (Mack), the "Designee" of the Creditors' Committee, which was elected and qualified in the Chapter XI arrangement proceeding. The defendant is the First National City Bank of New York ("City Bank").

 The action was brought by the plaintiffs to recover certain preferential payments allegedly made to the defendant. *fn1" On this motion to dismiss we must accept the allegations of the complaint as true. Gardner v. Toilet Goods Ass'n, 387 U.S. 167, 172, 87 S. Ct. 1526, 18 L. Ed. 2d 704 (1967).

 The petition for an arrangement was filed on August 17, 1970. Thereafter, by order of the Bankruptcy Court, TCFC was authorized to act as debtor-in-possession, to take possession of its assets and to operate its business subject to the order of the Court. On December 28, 1970, a plan of arrangement was confirmed by the Honorable John C. Ford, Referee in Bankruptcy in Fort Worth, Texas. The plan of arrangement provided, inter alia, that "TCFC shall assign to the designee of the Creditors' Committee all causes of action which TCFC may have for preferences or fraudulent transfers or conveyances under Sections 60, 67 and 70 of the Bankruptcy Act. In the event of any recovery by said designee, the first $1,000,000.00 shall be paid to the senior debtholders [certain unsecured creditors] as defined herein. The balance, if any, of such recovery shall be distributed pro-rata to the creditors. . . ." In the "Order Confirming Plan of Arrangement," Referee Ford provided that TCFC shall continue as debtor-in-possession subject to the Court's orders. The plan of arrangement also provided that the Court would continue to retain jurisdiction for all purposes until the arrangement was fully consummated, although the Order did not so provide. *fn2"

 Subsequent to the confirmation of December 28, 1970 and in pursuance of the plan of arrangement, on April 6, 1971, TCFC "assigned and transferred to . . . Mack . . . all 'causes of action which [TCFC] has or may have . . . for preferences or fraudulent transfers or conveyances ' . . . ." On September 24, 1971, a Texas law firm was appointed to serve as attorneys for the aforementioned Creditors' Committee of which Mack was "Designee."

 On August 9, 1972 the Texas firm applied to Referee Ford for leave to bring an action in New York State to sue the defendant City Bank and several other parties to recover preferences. The alleged preference sought to be recovered from City Bank amounts to $750,000.00.

 Referee Ford also signed an order on August 9, 1972, authorizing the suit on behalf of Mack as "Designee of the Creditors' Committee" and TCFC as "Debtor in Possession" by local counsel in New York. The action to recover the preference was commenced in this Court on August 15, 1972. *fn3"

 The defendant bases its motion for judgment on the pleadings upon two grounds: 1) that the alleged claim for relief is not assignable and 2) that the claim for relief did not survive the confirmation of the plan of arrangement.

 I

 Section 60(b) of the Bankruptcy Act, 11 U.S.C. § 96(b), provides that preferences "may be avoided by the trustee." In a Chapter XI arrangement proceeding, where no trustee is appointed, the debtor-in-possession has all the title, and exercises all the powers of a trustee. He may sue to avoid a preference. 8 Collier, supra, P6.32 [7.3] at 980-81. Cf. In re Martin Custom Made Tires Corp., 108 F.2d 172 (2 Cir. 1939). But he may not assign his claim. Belding-Hall Mfg. Co. v. Mercer & Ferdon Lumber Co., 175 F. 335 (6 Cir. 1909); United States v. General Resources, Ltd., 204 F. Supp. 872 (D. Colo. 1962); Klein v. Leader Electric Corp., 81 F. Supp. 624 (N.D. Ill. 1948); In re Winkelman, 41 F. Supp. 520 (D. Or.), aff'd, 123 F.2d 78 (9 Cir. 1941); 3 Collier, supra, P60.57 [2] at 1093. The purported "assignment," contained in the plan of arrangement to Mack of "all causes of action which TCFC may have for preferences . . ." is invalid. It cannot vest Mack as an assignee with the right to bring this suit to avoid the preferences.

 Nor can Mack, by virtue of his appointment as "disbursing agent to distribute, subject to the control of the court, the consideration, if any, to be deposited by the debtor . . . ". Bankruptcy Act § 337(1), 11 U.S.C. § 737(1), expand his duties to those of a trustee.

 The duties of a "distributing agent" under § 337(1) are simply "to distribute, subject to the control of the court, the consideration, if any, to be deposited by the debtor." 8 Collier, supra, P5.27 [7] at 670. His authority may not be extended beyond the express words of the statute. See In re Tamasha Town and Country Club, 320 F. Supp. 571 (C.D. Cal. 1970). He has no statutory authority to sue for the recovery of a preference in his capacity as disbursing agent. And he has no competence except over funds "deposited by the debtor." § 337(1) of the Act, 11 U.S.C. § 737(1).

 The ingenious counsel for the plaintiffs contends, however, that the "deposit by the debtor" included a deposit of its right to sue for a preference. I see nothing in the statutory scheme that would include intangible claims for relief against third parties to be considered "deposits," nor has any authority been cited in support. Nor can a "disbursing agent" qualify as a "receiver" whose function, in any event, would be "to preserve the debtor's property rather than act as the representative of his creditors." See Bartle v. Markson, 340 F.2d 30, 33 (2 Cir. 1965).

 Since the assignment of the disbursing agent of the claims to void preferences was invalid, the claim to recover the alleged preference ...


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