In re Federal Biscuit Co.

203 F. 37, 121 C.C.A. 373, 1913 U.S. App. LEXIS 1118

• Court: Court of Appeals for the Second Circuit
• Decided: February 10, 1913
• Docket: No. 149
• Status: Published

Opinion

NOYES, Circuit Judge.

[1] The bankruptcy act authorizes the District Court as a court of bankruptcy to stay suits against the bankrupt founded upon provable claims pending in state courts at the time of the bankruptcy. It also authorizes such stays in attachment actions instituted within four months of the bankruptcy, the lien of the attachment being invalidated thereby. But the power is given in both' cases only for the benefit of the bankrupt estate. If the estate have no interest in the suit or action it cannot properly be stayed. As this Court said in In re Mercedes Import Co., 166 Fed. 427, 92 C. C. A. 179:

“As the trustee in bankruptcy has no interest whatever in the claim against the surety, we think the creditor’s rights and equities are questions to be disposed of by the state court.”

[2] In the Mercedes case the facts were somewhat similar to those appearing here. An attachment suit had been brought in a state court against a corporation which subsequently became bankrupt. • A bond was substituted for the attachment. The District Court stayed the action but this Court reversed the order upon the ground indicated in the extract quoted, viz: that the bankrupt estate had no interese in preventing proceedings in the state court which looked only to enforcing the obligation of the surety company upon the attachment bond. But in the Mercedes case the attachment was made more than four months before the bankruptcy and, what is particularly important, no property of the?bankrupt estate was held directly or indirectly to indemnify the surety. In the present case, on the other hand, the attachment was made within four months of bankruptcy and if Anger has a right to the property transferred for his benefit the trustee has a substantial interest in the attachment action. If the surety company is held it can look to,Anger for indemnity and he may avail himself of the property of the estate. Thus if a stay be not granted a suit against a bankrupt on a provable claim brought within four months of bankruptcy may result in a depletion of the assets of the estate — a result clearly in contravention of the purpose of the bankruptcy act.

The appellant seeks to avoid the conclusion stated by urging that Anger has no right to the property held in trust for him; that the arrangement for his benefit is illegal. We think, however, that this contention is not well founded. No positive fraud is shown. There is nothing in the record to show that Anger acted in bad faith in indemnifying the surety company or participated in any scheme to give the plaintiff in the attachment suit a preference. He acted upon a present consideration. The conveyance to him was contemporaneous with his indemnity to the surety company and so far as the record shows it was neither fraudulent nor a preference. McDonald v. Clearwater R. Co. (C. C.) 164 Fed. 1007; Young v. Upson (C. C.) 115 Fed. 192; In re Wolf (D. C.) 98 Fed. 85.

It follows, then, that as the result of the prosecution of the attachment suit will be the appropriation indirectly of property of the bankrupt estate the trustee is interested in it, and the case is distinguishable from the Mercedes case and is one in which the protection of the estate requires a stay. So much of the order, therefore, as grants a stay will be affirmed. We think this measure of relief all that is called for at the present time and sufficient to determine the rights of the parties. The other portions of the order are, however, set aside without prejudice to- further proceedings if necessary. No costs are awarded in this court.