decided: January 13, 1982.
IN RE: RICHARD H. M. MAIDMAN, NOT INDIVIDUALLY, BUT AS TRUSTEE UNDER THAT CERTAIN LAND TRUST AGREEMENT DATED DECEMBER 19, 1975, KNOWN AS "TRUST NUMBER 2," DEBTOR. COMPASS INVESTMENT GROUP, MOVANT-APPELLANT,
RICHARD H. M. MAIDMAN, NOT INDIVIDUALLY, BUT AS TRUSTEE UNDER THAT CERTAIN LAND TRUST AGREEMENT DATED DECEMBER 19, 1975, KNOWN AS "TRUST NUMBER 2," RESPONDENT-APPELLEE
Compass appeals from a decision in the Southern District of New York, Motley, J., affirming a decision in bankruptcy court, Lewittes, B. J., which held that the bankruptcy court has subject matter jurisdiction because Land Trust No. 2 is eligible for relief under the Bankruptcy Act of 1898. Affirmed.
Before Lumbard, Oakes, and Kearse, Circuit Judges.
Debtor Land Trust No. 2, through its trustee Richard H. M. Maidman, sought the protection of Chapter XII of the Bankruptcy Act of 1898, §§ 401 et seq., 11 U.S.C. §§ 801 et seq. (1976)*fn1 over the objection of mortgagee Compass Investment Group that land trusts could not file for bankruptcy relief. Bankruptcy Judge Lewittes held that land trusts could file under the Act, 2 B.R. 569, 5 B.C.D. 1334 (S.D.N.Y. 1980). The district court affirmed in an unpublished order (Motley, J.). We affirm.
The Chapter XII petition, the documentary record and the bankruptcy court's opinions and proceedings provide the facts, which are not disputed on this appeal. Land Trust No. 2 was created under Florida law on December 19, 1975, as part of a series of complex transactions relating to the ownership, management and financing of the International Hotel and the Barcelona Hotel in Miami Beach, Florida.*fn2 Land Trust No. 2 holds a 99 year lease on the land beneath the hotels, and owns the fee in the hotels themselves. Land and buildings were mortgaged to Compass, securing a $4,250,000 note on which principal and $2,008,792 accrued interest were in default on the date of the petition.*fn3 Land Trust No. 2 defaulted on Compass's note in 1976 and negotiated with Compass under threat of foreclosure through 1976 and 1977.*fn4 Compass initiated foreclosure proceedings in Florida state court in January 1978, and a receiver was appointed to take possession of the property on January 24. But the foreclosure action was stayed on January 25 when a Chapter XII petition was filed by Barcelona Operating Associates No. 2 (BOA No. 2), which had possession of the hotels as sublessee and managing agent for Land Trust No. 2. BOA No. 2 failed to get acceptances for its plan of arrangement at a meeting on June 29, 1978. Three weeks later, that Chapter XII proceeding was dismissed for lack of jurisdiction. Only debtors with real property pledged to support a loan may file under Chapter XII, and though Land Trust No. 2's ground lease and hotels are pledged, BOA No. 2's sublease was not. In re Barcelona Operating Associates No. 2, 78-81-Bk-JE-H (S.D.Fla. July 18, 1978). Compass renewed foreclosure proceedings. On December 19, 1978, the receiver entered into a short-term lease of the Barcelona Hotel to Jomar Corp. at a rent of $210,000 per month. On January 9, 1979, Maidman filed the present Chapter XII petition on behalf of Land Trust No. 2, and the bankruptcy court issued an order permitting Land Trust No. 2 to regain possession of the hotels. Two days later, however, the bankruptcy court reversed itself and amended the order to subject the debtor to Jomar's lease. On January 16, the bankruptcy court ordered the debtor not to interfere with Jomar's possession. The injunction was upheld February 23 in the district court. In re Maidman, 466 F. Supp. 278 (S.D.N.Y.1979) (Gagliardi, J.).
On March 8, 1979, Compass moved to dismiss on the ground that the land trust was not a "person" within the meaning of § 1(23) of the Bankruptcy Act of 1898, 11 U.S.C. § 1(23). Only "persons" within that section may file a Chapter XII petition. On February 1, 1980, the bankruptcy court held that the Bankruptcy Act evinced no purpose to exclude land trusts, and that the Act's larger goals of debtor relief and equity among creditors would be served by applying the Act to the land trust. Absent a prohibition in the Act or a competing forum qualified to distribute the assets of the debtor, the bankruptcy court concluded that bankruptcy relief should not be denied to a debtor who can benefit from the Act's provisions. The district court affirmed on May 20, 1981. This appeal followed.
The debtor/appellee raises preliminary objections to this appeal on the grounds either that the case is moot or that the decision below is not a "final order" and hence not appealable. The first objection rests on the bankruptcy court's dismissal of this Chapter XII petition on August 4, 1981, for want of prosecution. But though the bankruptcy case has been dismissed, that dismissal is itself on appeal to the district court.*fn5 So long as that appeal is alive, this one is not moot. The second objection rests on the interpretation of § 24(a) of the Bankruptcy Act of 1898, 11 U.S.C. § 47(a), which provides that both interlocutory and final orders are appealable from "proceedings in bankruptcy," but only final orders are appealable from "controversies in proceedings in bankruptcy." A "proceeding" involves the administration of the bankrupt's estate, while a "controversy" involves the competing claims of parties in the proceedings. United Kingdom Mutual Steamship Assurance Ass'n v. Liman, 418 F.2d 9, 10 (2d Cir. 1969). The eligibility of Land Trust No. 2 for bankruptcy relief determines whether the administration of the estate shall proceed. It does not concern the rights of competing parties. Therefore this appeal is an appeal from a "proceeding" in bankruptcy, and this court has jurisdiction under § 24(a).
Chapter XII is open to non-corporate debtors who can file a voluntary bankruptcy petition. Sections 406(6), 422, 11 U.S.C. §§ 806(6), 822. Any "person," with exceptions not here relevant, may file a voluntary petition, § 4(a), 11 U.S.C. § 22(a). Person is defined in § 2(23), 11 U.S.C. § 1(23), as follows:
(23) "Persons" shall include corporations, except where otherwise specified, and officers, partnerships, and women...
Because this definition uses the words "shall include," rather than the words "shall mean," which appear in other definitions, the Supreme Court read this language "to expand not to restrict" the meaning of "person." American Surety Co. of New York v. Marotta, 287 U.S. 513, 517, 52 S. Ct. 260, 261, 77 L. Ed. 466 (1933). Citing its interpretation of "Person includes ..." in § 1(23), the Court held that § 1(11)"s definition of creditor-" Creditor includes ..."-comprehended a surety even though the surety's liability is contingent and sureties are not mentioned in § 1(11). We believe that, although land trusts are not expressly mentioned as "persons," the statute should not be read to exclude them. As the statute provides no further specific indication as to the meaning of the word "person," we should give weight to the general purposes of the Bankruptcy Act. Bankruptcy legislation has two purposes: debtor relief, see United States v. Kras, 409 U.S. 434, 448-49, 93 S. Ct. 631, 639-40, 34 L. Ed. 2d 626 (1973), and equity among creditors, see Young v. Higbee Co., 324 U.S. 204, 210 & n.8, 65 S. Ct. 594, 597 & n.8, 89 L. Ed. 890 (1945). The first purpose is clearly served by permitting Land Trust No. 2 to operate in bankruptcy court. Even in liquidation proceedings, the Act allows the debtor or his trustee to proceed without harassment. See Matter of Nat'l Hospital & Institutional Bldrs. Co., 658 F.2d 39, 44 (2d Cir. 1981). Compass has tried to deprive the debtor of possession and control of the hotels through state court litigation; even in bankruptcy proceedings, Compass has objected to the debtor's efforts to lease an unproductive wing of the Barcelona Hotel for $275,000 per year plus a percentage of profits.*fn6
The second purpose of the Act, equity among creditors, is served best by allowing Land Trust No. 2 to proceed under the Act because the Act gives the debtor or trustee power to recover preferences and fraudulent conveyances, §§ 60, 67d, 11 U.S.C. §§ 96, 107(d), beyond the powers available in state courts.*fn7
As the Act contains such broad powers, we have allowed a foreign banking corporation to proceed under the Act, even though national banks are excluded from the Act's coverage under § 4(a), 11 U.S.C. § 22(a). Israel-British Bank (London) Ltd. v. FDIC, 536 F.2d 509, 515 (2d Cir.), cert. denied, 429 U.S. 978, 97 S. Ct. 486, 50 L. Ed. 2d 585 (1976).*fn8
Permitting land trusts access to bankruptcy courts will also further efficient administration of the Bankruptcy Act. As the law now stands, the individual beneficiaries of a land trust may protect the business by filing as individuals under Chapter XII, Master of Gladstone Glen, 628 F.2d 1015 (7th Cir. 1980). But this means either that one beneficiary's Chapter XII shields all beneficiaries by protecting the land trust or that all beneficiaries become necessary parties for the restructuring of the land trust's debts in Chapter XII. It makes more sense to allow the land trust as an entity to proceed under the Act. See Mayo v. Barnett Bank of Pensacola, 448 F. Supp. 250 (N.D.Fla.1978).
Appellant Compass provides no good reason why the Bankruptcy Act should not apply to land trusts. Compass rests on the authority of Associated Cemetery Management, Inc. v. Barnes, 268 F.2d 97 (8th Cir. 1959), which held that an employees' profit sharing trust was not eligible for bankruptcy relief under § 4(a). Associated Cemetery is not persuasive authority on the issue before the court. The Eighth Circuit considered only that the profit-sharing trust was not a corporation as defined in § 1(8), 11 U.S.C. § 1(8). It gave scant attention to the larger question of whether the profit sharing trust was a person under § 1(23) of which "corporation" is only a subset.*fn9 A decision holding that a profit sharing trust is not a corporation does not convince us that a land trust, which must avoid corporate status for Chapter XII, cannot be a person.*fn10
Finally, there is the history of Chapter XII which, though not directly relevant to the § 1(23) definition which preceded enactment of that chapter, nonetheless illuminates the purposes of the Act. Chapter XII was part of the Chandler Act of 1938, 52 Stat. 840. The Chandler Act provided three methods of business rehabilitation. Chapter X, §§ 101 et seq., 11 U.S.C. §§ 501 et seq., provided for restructuring debt and equity, and was intended for complex financial corporations. Chapter XI §§ 301 et seq., 11 U.S.C. §§ 701 et seq., provided for restructuring unsecured debt only, and was intended for simple businesses. Chapter XII provided for restructuring secured and unsecured debt held by non-corporate real estate businesses, because Congress thought that real estate businesses-especially in Illinois, which had invented the land trust here at issue-presented special problems. H.Rep. 1409, 75th Cong., 1st Sess. 51 (1937). Land trusts are such businesses. We find no good reason to exclude them from the protections of the Bankruptcy Act in force at the time this proceeding commenced.