The opinion of the court was delivered by: DUFFY
OPINION AND ORDER IN PROCEEDINGS FOR THE REORGANIZATION OF A CORPORATION
KEVIN THOMAS DUFFY, District Judge.
On August 31, 1976 the Duplan Corporation (Duplan) filed a petition under Chapter XI of the Bankruptcy Act (the Act). Thereafter, on October 5, 1976, the Bankruptcy Judge entered an order directing that the case proceed under Chapter X of the Act, and on October 6, 1976 I appointed Alfred Slaner as Trustee in Reorganization of Duplan. The instant action is one of several adversary proceedings filed against the Trustee. In this action, plaintiffs seek to establish a valid perfected security interest in certain of Duplan's assets.
Plaintiffs have moved to dismiss paragraphs 8(b)(iv) of the Trustee's Second Defense and First Counterclaim against plaintiffs and the Trustee's Seventeenth Counterclaim against plaintiff Chemical Bank (Chemical) for failure to state a claim upon which relief can be granted. It appears that Chemical and Duplan entered into an indenture on February 1, 1969 pursuant to which Duplan issued certain debentures. Chemical apparently served as Indenture Trustee under the indenture until its resignation as of April 28, 1976. The defenses and counterclaims sought to be dismissed relate to Chemical's conduct while Indenture Trustee.
Paragraph 8(b)(iv) of the Trustee's Second Defense and First Counterclaim states as follows:
8. By reason of their control of Duplan's finances and the presence of their representative on Duplan's Board of Directors, the Bank dominated the affairs of Duplan to their own benefit and to the detriment of other creditors of Duplan in that:
(b) they delayed the filing of a petition instituting a bankruptcy case (or a Chapter proceeding), which the Banks knew to be necessary, so as to avoid the consequences which a timely petition would have caused to said Banks by:
(iv) Chemical, prior to its resignation as Indenture Trustee as of April 28, 1976, disregarding its duties under the Indenture dated February 1, 1969 (the "Indenture"), between Duplan and Chemical, as Trustee (under which Duplan's 5-1/2% Convertible Subordinated Debentures ("debentures") were issued) and the Trust Indenture Act of 1939 and failing to notify holders of debentures of the defaults under the Credit Agreement and the actual insolvency of Duplan, thereby continuing a market in debentures for unsuspecting purchasers as well as failing to disseminate information which might have resulted in a bankruptcy petition being filed against Duplan; . . .
Plaintiffs contend that this portion of the Trustee's Second Defense and First Counterclaim must fail because Caplin v. Marine Midland Grace Trust Company of New York, 406 U.S. 416, 32 L. Ed. 2d 195, 92 S. Ct. 1678 (1972) holds that the Trustee lacks standing to assert a claim on behalf of the debenture holders, based upon the alleged failure of the Indenture Trustee to perform his duties.
However, it does not appear that paragraph 8(b)(iv) asserts the type of claim found in Caplin. In Caplin, the Trustee of a corporation in reorganization proceedings under Chapter X of the Bankruptcy Act filed an action on behalf of the corporation's debenture holders against the Indenture Trustee, seeking to recover damages in the principal amount of the outstanding debentures for the Indenture Trustee's purported misconduct. The Trustee additionally filed, on the same grounds, a counterclaim for damages and an objection to the Indenture Trustee's claim for services rendered filed in the reorganization proceeding, and moved to compel an accounting by the Indenture Trustee. The Supreme Court examined the nature of Chapter X proceedings, the role of the reorganization trustee and the difficulties with allowing such claims by the trustee, and concluded that a reorganization trustee lacks standing to sue an indenture trustee on behalf of debenture holders, thus affirming the Court of Appeals' decision affirming the District Court's grant of the Indenture Trustee's motions to dismiss the Trustee's independent action and counterclaim asserted in the Chapter X proceeding, and denial of the Trustee's motion to compel an accounting. Only the Trustee's objection to the claim for services rendered remained; the Court of Appeals had affirmed the District Court's denial of the motion to strike that objection, and the Supreme Court did not reach the propriety of that ruling, although it did note that
This objection differs from the other claims in one respect; i.e., it is an attempt to preserve the remaining assets of the debtor for all creditors other than [the Indenture Trustee], whereas the other claims represent an attempt by the [Trustee] to increase the assets of the debtor for the benefit of a specific class of creditors, the debenture holders. 406 U.S. at 421 n. 12.
In the instant case, paragraph 8(b)(iv) is asserted merely as one of four purported examples of one of three alleged means by which plaintiffs are claimed to have improperly dominated the affairs of Duplan so as to cause subordination of Duplan's obligations owed plaintiffs to other of Duplan's indebtedness.
The legal sufficiency of the balance of the Second Defense and First Counterclaim to which it relates -- that plaintiffs improperly dominated Duplan's affairs by, inter alia, knowingly delaying the necessary filing of a bankruptcy petition -- is undisputed. The issue presented, then, is not whether the Trustee can assert a claim on behalf of the debenture holders for the Indenture Trustee's purported misconduct, but rather whether the Trustee is precluded from asserting such misconduct as proof of the concededly sufficient defense and claim of delay and domination. In so doing, the Trustee is clearly seeking not "to increase the assets of the debtor for the benefit of a specific class of creditors, the debenture holders." Caplin v. Marine Midland Grace Trust Co., supra, at 421 n. 12. He is instead attempting to require subordination of plaintiffs' claims to those of other ...