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In re Roll Form Products Inc.

October 16, 1981


Appeal from an order of the United States Bankruptcy Court for the Southern District of New York, Lewittes, J., denying plaintiff's motion for a preliminary injunction and dismissing plaintiff's adversary suit which sought a permanent injunction to enjoin defendants' collection of various freight charges and to recover charges already collected. Reversed and remanded.

Author: Meskill

Before: OAKES and MESKILL, Circuit Judges, and BLUMENFELD, District Judge .*fn*

MESKILL, Circuit Judge :

Roll Form Products, Inc., a Chapter XI debtor, appeals from an order of the United States Bankruptcy Court for the Southern District of New York, Lewittes, J.,*fn1 denying its motion for preliminary relief and dismissing its suit to enjoin defendants, interstate carriers, from collecting shipping charges from Roll Form's customers and to compel repayment of charges already collected. The bankruptcy court's decision was premised upon the applicability of the Interstate Commerce Act to this case. Because we conclude that the Act has no bearing upon the issues presented, we reverse and remand .


The present case arises from Roll Form's activities as a manufacturer of fabricated steel products. As a business procedure, Roll Form would bill its customer-consignees in advance for freight costs and in turn contract with carriers to transport the purchased goods. All shipping orders and bills of lading introduced into evidence were accordingly marked "prepaid" as to shipping charges. Furthermore, as part of this arrangement, the carriers extended credit to Roll Form for the freight charges, allowing monthly payment. The record does not indicate whether this arrangement was established contractually or informally for the convenience of the parties, and the issue was never determined by the bankruptcy court. However, since we are reviewing a dismissal on the pleadings, we must accept as true the material facts alleged by Roll Form. Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 740 (1976). We therefore proceed upon the assumption that all parties to this action were contractually bound to an arrangement which provided for the customer-consignees to pay freight charges exclusively to Roll Form, and for the carriers to look solely to Roll Form for payment.

Roll Form was beset by financial difficulties in the late 1970s and filed a petition for reorganization under Chapter XI of the former Bankruptcy Act, 11 U.S.C. §§ 701 et seq ., on August 1, 1979.*fn2 At that time, Roll Form owed over $48,000 of freight charges. Soon thereafter, most of the defendants, carriers hich had delivered goods to Roll Form's customers, filed claims for unpaid freight charges with the bankruptcy court. Unsatisfied with the prospects for full recovery from those proceedings, however, the carriers attempted to, and in many instances did, recover charges directly from the customers. As a result freight charges were withheld from Roll Form's estate.

Roll Form, believing that the carriers were depriving the bankruptcy estate of the freight charges, and fearing that the collection activities would have a devastating effect upon future business relations with the badgered customers, commenced the present proceeding by order to show cause on December 11, 1980. Roll Form secured a temporary restraining order to enjoin further collections by the defendants pending a hearing on its motion for a preliminary injunction, and filed a complaint in an adversary suit seeking a permanent injunction as well as recovery of amounts already collected by defendants.*fn3

The 1980s, however, fared no better for Roll Form. The bankruptcy judge not only denied the preliminary injunction, but also determined that Roll Form's complaint was "so clearly insufficient" that he consolidated the adversary suit with the motion for preliminary relief, dismissing the entire proceeding without prior notice or hearing. 8 B.R. 479, 485 (S.D.N.Y. 1981) (Bankruptcy Court).

In considering Roll Form's request for preliminary relief, Judge Lewittes found that neither irreparable harm had been shown nor a substantive claim alleged. Roll Form had argued that defendants' "harassment" of its customers for payment of freight charges would impair future business relationships. Judge Lewittes held, however, that the evidence at the preliminary hearing had shown that only two customer-consignees had threatened to sever business dealings with Roll Form as a result of defendants' collection activities. He therefore concluded that the claims of irreparable injury were "speculative." 8 B.R. at 482.

In considering the substance of the complaint, Judge Lewittes found even less merit, holding that defendants' activities were simply not, as Roll Form contended, unlawful. Roll Form's entire action was premised upon the assumption that, by contract, the freight charges being pursued by defendants were exclusively owed to Roll Form's estate and were thus protected by the automatic stay provisions of the Bankruptcy Act.*fn4 Judge Lewittes concluded, however, that section 10744 of the Interstate Commerce Act, 49 U.S.C. § 10744 (Supp. III 1979), renders a consignee independently liable to a carrier for freight charges upon his acceptance of the delivery of goods and that Roll Form's property was therefore not implicated in the collection activities. 8 B.R. at 483.

Since Judge Lewittes' legal analysis precluded any possibility of relief for Roll Form, he consolidated the underlying adversary suit with the preliminary hearing, dismissing the entire proceeding without availing the parties of either notice or an opportunity for further hearing. In dismissing the adversary suit, Judge Lewittes observed that such a sua sponte consolidation would constitute reversible error "unless the affected party fails to demonstrate surprise or prejudice occasioned by the consolidation." 8 B.R. at 485 (footnote omitted). However, he concluded,

Here, although no notice of consolidation has been ordered, because the instant complaint is, as noted above, so clearly insufficient and "entirely destitute of equity", dismissal, on the merits, ...

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