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In re National Aircraft Corporation. Duggan

April 21, 1945

IN RE NATIONAL AIRCRAFT CORPORATION. DUGGAN
v.
SANSBERRY. NATIONAL AIRCRAFT CORPORATION V. SAME.



Author: Sparks

Before SPARKS and MAJOR, Circuit Judges, and BRIGGLE, District Judge.

SPARKS, Circuit Judge.

This appeal is from an order of the District Court of the Southern District of Indiana entered on June 5, 1944. That order denied separate petitions for review of a previous order, purporting to be presented by National Aircraft Corporation of Indiana, hereafter referred to as National, whose principal place of business and all of its assets are located in that State, and by James F. Duggan, trustee of the estate of Christopher Engineering Company of Missouri, hereafter referred to as Christopher, whose principal place of business is St. Louis. The order sought to be reviewed was entered May 3, 1944, and confirmed a sale of National's major assets by Sansberry, its trustee in bankruptcy.

The issue here presented involves a clash of jurisdiction between the district courts of Southern Indiana, and the Eastern Division of the Eastern District of Missouri.

The principal question for our decision is whether the District Court of Missouri had jurisdiction on April 19, 1944, to decree as it did, "That the National Aircraft Corporation is a wholly owned subsidiary of the Christopher Engineering Company * * * the principal debtor herein, and is entitled to file its petition in these proceedings of the parent company," and to order appellee, the trustee appointed by the Indiana Court, to turn over all assets of National to a trustee appointed by itself. That question is to be decided from the following undisputed facts.

On December 27, 1943, Christopher filed its petition, in the District Court of Missouri, for reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. The petition was approved by that court and Duggan was appointed trustee. The resolution relied upon as authority for filing such petition did not purport to be an act of that corporation. It was signed only by A. B. Christopher, President, and J. M. Brown, Vice-President, and the name of the Company nowhere appears with the other signatures. They therein described themselves as owning a majority of the shares of stock of the Christopher Company and as constituting a majority of its board of directors. They further described Joe Dubman as the minority of the Board of Directors, who, on account of his hostility to the majority of the Board, had instituted a suit in the Missouri State Court for the appointment of a receiver for that Company. Under those conditions they said it was impossible to hold a formal meeting of the directors or stockholders, and they therefore ordered themselves, or either one, as President or Vice-President respectively, of the Christopher Company, to file that Company's petition for reorganization. The petition was signed by the debtor by A. B. Christopher, President, and verified by his oath.

On January 21, 1944, an involuntary petition in bankruptcy was filed against National in the District Court of Indiana, by certain of its creditors. On February 8, 1944, in that proceeding, National was adjudicated a bankrupt, an order of reference was made, and Sansberry was appointed receiver. On March 7, 1944, Sansberry was elected trustee by the creditors, took possession of the assets, and on March 21, 1944, he filed a petition before the Indiana referee to sell them. On April 6, 1944, the referee ordered the trustee to sell those assets on April 20, 1944.

J. M. Brown, a stockholder and director of Christopher, was also secretary of National when it was adjudicated a bankrupt. On April 19, 1944, he caused an intervening petition to be filed on behalf of National in Christopher's reorganization proceedings in Missouri, thereby seeking reorganization of National as a subsidiary of Christopher. That petition was signed "National Aircraft Corporation, a corporation, By J. M. Brown, Petitioner." It was verified by Brown's oath, which stated that he was Secretary of National, and that he was duly authorized to make the petition and affidavit in National's behalf. There was no showing as to how or by whom he was thus authorized. Moreover, the petition disclosed to that court that National had been adjudicated a bankrupt by the District Court in Indiana; that Sansberry had been appointed trustee, had taken possession of all the assets of National, and by order of that court had advertised a sale of such assets, beginning the next day at the debtor's place of business in Indiana, and that unless restrained by the District Court of Missouri, the sale would proceed as advertised. On the same day the District Court of Missouri found, "That the National Aircraft Corporation is a wholly owned subsidiary of the Christopher Engineering Company * * * the principal debtor herein, and is entitled to file its petition in these proceedings of its parent company." Thereupon the injunction issued on April 19, and was served upon Sansberry, Trustee, and his auctioneer the next morning at 9:30, the time scheduled for the sale to begin. The sale proceeded as advertised, a report thereof was made by the trustee to the referee on April 21, and it was approved by that referee on May 3, 1944.

On May 10, 1944, James F. Duggan as trustee of the estate of Christopher, and trustee of the estate of National (by virtue of the appointments of the District Court in Missouri) filed a petition in the District Court in Indiana to stay further proceedings in that court, and to set aside all orders made by it with respect to National on or after April 19, 1944.That court, as requested, reviewed such orders and confirmed the sale on June 5, 1944. Duggan, as trustee of both debtors, gave notice of appeal.

It is conceded by appellants that the District Court in Indiana had jurisdiction of National and its assets prior to April 19, 1944. However, they contend that by virtue of section 129 of Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 529, the jurisdiction in the Indiana Court terminated and became lodged in the District Court in Missouri, by reason of the latter's order on that date with respect to National's alleged petition for reorganization. Before there could be jurisdiction in the latter court, we think it must have been established that National was a subsidiary of Christopher, not only on April 19, 1944, but on December 27, 1943, when Christopher filed its petition for reorganization, and also on January 21, 1944, when the involuntary petition in bankruptcy against National was filed in Indiana. Unless it had such a status at the earlier dates, the fact that it became a subsidiary at the later date was insufficient under the applicable provisions of the Bankruptcy Act to confer jurisdiction upon the Missouri Court. These were jurisdictional facts, which of necessity must have been proved before the court in Missouri could possibly obtain jurisdiction of National, or oust the jurisdiction of the District Court in Indiana, and the burden was upon petitioners to establish those facts. This they did not do.

Appellants contend that National was a subsidiary of Christopher because the latter owned all of the former's capital stock having the power to vote for the election of directors. It is not denied that Christopher, or its trustee, received all such stock, if any, in its possession on April 19, 1944, from A. B. Christopher and J. M. Brown, who, prior to that time, held the majority stock in each corporation.

It is significant that the order of the court in Missouri does not state that Christopher owned any stock of National prior to April 19, 1944. Certainly Christopher, after its petition for reorganization had been approved and a trustee appointed for its estate, would not be permitted to purchase stock of another corporation without that court's permission, even for the purpose of acquiring a subsidiary. No such order appears to have been made. It would also seem passing strange, after National had been adjudicated a bankrupt, to permit its majority stockholders to transfer their stock to another corporation in order to effectively create a subsidiary for the purpose of taking a change of venue on the alleged subsidiary's petition for reorganization, and that too when its assets had been advertised for sale without any suggestion whatever to either the court or the debtor's trustee in Indiana that it desired a reorganization.

On first thought it might seem a captious interpretation of the Missouri court's order to limit the beginning of the subsidiary relationship to April 19, 1944. However, that is the date selected by that court and we must presume that there was no evidence before it that the relationship existed earlier. If there is any doubt that the court meant what it said in that order, we call attention to further facts before us which seem to fully confirm our interpretation of it. We do not discuss the facts about to be related for the purpose of showing that the court in Missouri erred in deciding the merits of the petition, but rather for the purpose of showing that it was without jurisdiction to enter such order. Of course, if it had jurisdiction, it had the right to decide the merits regardless of whether that decision was right or wrong.

Christopher's petition for reorganization states among other matters that "The financial condition of your petitioner is fully set forth in the balance sheet as of September 30, 1943 * * * annexed hereto and made a part hereof." This was Christopher's last balance sheet and it makes no mention of the debtor's ownership or control of any stock in the ...


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