In re Steinreich Associates, Inc.

83 F.2d 740, 1936 U.S. App. LEXIS 2631

Opinions

CHASE, Circuit Judge.

Both the referee and the district judge considered that In re J. R. Palmenberg Sons, Inc. (C.C.A.) 76 F.(2d) 935, 936, required the denial of the motion for leave to withdraw. The decision in that case has since been reviewed and affirmed in Bronx Brass Foundry v. Irving Trust Co., 56 S.Ct. 451, 80 L.Ed. —, February 10, 1936. It has been decided that the rule of the Southern District Court, which appears in the margin,

* is a valid exercise of the judicial power to regulate procedure and that it applies to bankruptcy proceedings. The general right of a plaintiff in equity to have his bill dismissed (see Ex parte Skinner & Eddy Corporation, 265 U.S. 86, 44 S.Ct. 446, 68 L.Ed. 912) has been changed in the Southern District by this rule. And a claimant there may not withdraw a claim filed in bankruptcy proceedings after objections to it have been interposed by the trustee unless in the exercise of a sound discretion leave to do so should be granted.

In the Palmenberg Case, supra, not only had issue been joined, but hearings on the merits had been held, and, when the motion for leave to withdraw was made, there was apparently reason to believe that the estate would be somewhat prejudiced by permitting the withdrawal. Here there have been no hearings on the merits. Though the objections to the allowance of the claim do not appear of record, the briefs of the parties and the arguments have gone on the ground that the receipt of alleged preferences formed the basis of the objections to the allowance and we shall assume that to be so. If such objections can be sustained, the preferential payments will have been established, and that issue will be res adjudicata though it is true that there can be no recovery of preferences in a summary proceeding before the referee. In re J. R. Palmenberg Sons, supra. As said in the case just cited, “To have deprived the trustee of the right to establish in the summary proceeding the fact of a preference would have been to take away a substantial right.” Issue had been joined on the question of preferences and no reason for granting leave to the claimant to - withdraw has been advanced but the fact that it has been paid, through the sale of collateral which belonged to a guarantor, the balance it claimed due on the note. That did not relieve the bankrupt’s estate from all possible liability. In so far as the guarantor paid the claim he had the rights of this claimant against the estate, and if the claimant failed to prove the guarantor could do so in the claimant’s name. Section 57i of the Bankruptcy Act, 11 U.S.C. A. § 93 (i). So the reason given for the leave asked is only that the beneficial interest in the claim presented has been shifted from the claimant to the guarantor leaving the situation of the bankrupt estate in every real sense unchanged. Consequently, the right of the trustee to have the fact of a preference established in a summary proceeding is a substantial right, and we can find no abuse of discretion in denying the motion for leave to withdraw and requiring, under the rule of court above quoted, a determination of the issue joined in the jurisdiction the claimant elected to invoke when it filed the claim. Bronx Brass Foundry, Inc. v. Irving Trust Co., supra. That the decision in the case just cited was not modified by Jones v. Securities & Exchange Commission, 56 S.Ct. 497, 80 L.Ed. — April 6, 1936, is made clear by the majority opinion in the Jones Case.

Order affirmed.

“2. Voluntary Discontinuances. If justice requires, tile Court, after issue joined, may refuse to permit the plaintiff to discontinue even though the defendant cannot have affirmative relief under the pleadings and though his only prejudice bo the vexation and expense of a possible second suit upon the same cause of action.”