Nicholson v. Merken

477 F. Supp. 97, 1979 U.S. Dist. LEXIS 9783
CourtDistrict Court, N.D. Georgia
DecidedSeptember 14, 1979
DocketCiv. A. No. C79-782A
StatusPublished
Cited by1 cases

This text of 477 F. Supp. 97 (Nicholson v. Merken) is published on Counsel Stack Legal Research, covering District Court, N.D. Georgia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Nicholson v. Merken, 477 F. Supp. 97, 1979 U.S. Dist. LEXIS 9783 (N.D. Ga. 1979).

Opinion

ORDER OF COURT

MOYE, District Judge.

This case is before the Court on appeal of an order of the bankruptcy court. Defendant partnership Bartleby filed a proof of claim for $20,243.98 for alleged services rendered. The plaintiff trustee initiated this action by objecting to the claim filed by Bartleby. The reasons for the trustee’s objections are set out in his counterclaim, the first four counts of which are based on the transfer by the bankrupt of $31,000 to defendant Stefan Merken, one of the two partners in Bartleby. The transfer to Merken was a repayment on an investment Merken had made in a business run by Carolee Davis, president of the bankrupt. The investment was made solely out of Merken’s personal funds, and the repayment was solely for his benefit.

In his counterclaim the trustee alleges: (1) that the transfer was a voidable preference under 11 U.S.C. § 96a (Count I), (2) that the transfer was without fair consideration and thus null and void under 11 U.S.C. § 107d(2Xa) (Count II), (3) that the transfer was fraudulent or voidable under Ga.Code Ann. § 28-201(3) and thus null and void under 11 U.S.C. §§ 110(c) and 110(e) (also Count II), (4) that the transfer was a fraudulent conveyance under Georgia law and thus null and void under 11 U.S.C. §§ 110(c) and 110(e) (Count III), (5) that because defendants were joint ventures with Carolee Davis in a speculative and undercapitalized enterprise, Carolee’s Combine, and because they received a full return on their investment while trade and other creditors of Carolee’s Combine were paid parts of their debt or nothing at all, the transfer was fraudulent as against creditors of Carolee’s Combine under 11 U.S.C. § 110(e) (Count IV), and (6) that defendants were “joint venturers in the enterprise undertaken through Carolee’s Combine” and thus jointly liable under 11 U.S.C. § 110 for all of the debts of Carolee’s Combine, an amount in excess of $240,000 (Count V).

Defendants Stefan Merken and Bartleby moved to dismiss on the grounds that the bankruptcy court lacks summary jurisdiction. Bartleby originally argued that it should not be subject to the court’s summary jurisdiction because it would not receive [99]*99any benefit of the $31,000 transfer from the bankrupt to Merken. The bankruptcy court held that it had summary jurisdiction over Bartleby because Bartleby sought to participate in a distribution of the bankrupt’s estate and the trustee has asserted an objection to that participation under section 57g of the Bankruptcy Act. Merken started out in bankruptcy court arguing generally that he was not subject to the court’s summary jurisdiction because the claim by Bartleby and the transfer giving rise to the trustee’s counterclaim involved different transactions. The bankruptcy court held Merken subject to its summary jurisdiction relying on Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966).

On appeal, defendants have conceded in their reply brief that Katchen, supra, provides for summary jurisdiction over preference claims raised in opposition to a proof of claim. They have refined their argument, asserting that (1) Merken did not assert a proof of claim, and (2) that the trustee has asserted counts in his counterclaim that raise other than voidable preference issues.

The bankruptcy court has summary jurisdiction over a claim when the bankrupt is in constructive or actual possession of property, the subject of the claim, or when the claimant consents to the jurisdiction. See generally 2 Collier on Bankruptcy (14th ed.) [hereinafter Collier] ¶¶ 23.02-23.08. Prior to the decision in Katchen, supra, there was wide disagreement over the scope of a bankruptcy court’s summary jurisdiction to grant a trustee affirmative relief on a counterclaim. See e. g., Katchen v. Landy, 382 U.S. at 326 n.1, 86 S.Ct. 467 and cases cited therein; 2 Collier ¶ 23.08; 4 Collier ¶ 68.20; Comment, Katchen v. Landy and Summary Jurisdiction in Bankruptcy, 52 Va.L.Rev. 1530, 1536-38 (1966). Katchen, on its specific facts, dealt only with a very limited part of the problem.

In Katchen, the bankrupt borrowed $50,-000 from two banks; an officer of the bankrupt served as an accommodation maker on the notes the bankrupt made to its creditors. After the bankrupt underwent a serious fire, its assets were placed in a “trust account” under the sole control of the aforementioned officer. He made three payments on the notes on which he was an accommodation maker, within four months of the bankruptcy. When the bankruptcy ensued, the officer then filed two claims, one for rent due him from the bankrupt and the other for a payment on one of the notes made from his own funds. In his objection to the claims, the trustee sought a judgment against the banks for the amount of the three payments and unpaid stock subscriptions owed to the bankrupt. The referee and district court granted summary judgment for the trustee. The officer’s claims were to be allowed only upon payment of the judgment by the banks. Id. at 325, 86 S.Ct. 467. The Tenth Circuit affirmed as to the voidable preferences and reversed as to the stock subscription, 336 F.2d 535 (10th Cir. 1964); the trustee did not seek review of the latter holding. 382 U.S. at 326, 86 S.Ct. 467.

The Supreme Court noted the basic policy that the power to “allow,” “disallow,” and “reconsider” claims under 11 U.S.C. § 11(a)(2) “is to be exercised in summary proceedings and not by the slower and more expensive processes of a plenary suit.” 382 U.S. at 329, 86 S.Ct. at 472. Justice White then focused on the linchpin of the opinion — Bankruptcy Act § 57g, 11 U.S.C. § 93(g). That section provides as follows:

(g) The claims of creditors who have received or acquired preferences, liens, conveyances, transfers, assignments or encumbrances, void or voidable under this title, shall not be allowed unless such creditors shall surrender such preferences, liens, conveyances, transfers, assignments, or encumbrances.

Justice White then concluded that:

Unavoidably and by the very terms of the Act, when a bankruptcy trustee presents a § 57 [subjg objection to a claim, the claim can neither be allowed nor disallowed until the preference matter is adjudicated.

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477 F. Supp. 97, 1979 U.S. Dist. LEXIS 9783, Counsel Stack Legal Research, https://law.counselstack.com/opinion/nicholson-v-merken-gand-1979.