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In re Muntz TV Inc.

August 17, 1955


Author: Finnegan

Before MAJOR, FINNEGAN and SWAIN, Circuit Judges.

FINNEGAN, Circuit Judge.

Muntz TV, Inc., principal debtor here, leased a store building in Fort Worth, Texas on June 4, 1952 for a three-year term expiring June 30, 1955 from W. G. Embry of that State. By proceedings commenced March 2, 1954, with filing an involuntary petition for reorganization under Chapter X of the Bankruptcy Act,*fn1 appellees Allen and Dana, were appointed trustees of the debtor corporation. The Texas lease was rejected, as of March 4, 1954, by an order entered below April 2, 1954. Forced to enter an over-all field warehousing program with Lawrence Warehouse Company, shortly after signing that lease, Muntz sought its landlord's consent. But Embry, fearful of waiving his landlord's lien, withheld approval of such arrangement under which a part of all Muntz's leased premises would be segregated and Lawrence given custody of certain merchandise placed in segregated areas. Yet, Embry suggested that six months rent in advance under a deferred receipt arrangement with Muntz could stimulate granting the essential consent.Consequently a document was executed June 13, 1953 by Embry and Muntz containing these aspects now relevant:

"Whereas, Muntz Television Company, Inc. desires to enter into a field warehouse agreement with Lawrence Warehouse Company which involves a section of approximately 45 ft. by 46 ft. of the building covered by aforesaid lease, and has requested that the above named Lessor, W. G. Embry, grant permission to said Lessee to enter into such agreement for field warehouse purposes:

"Now, Therefore, In Consideration of Muntz Television Company, Inc. placing the sum of $2,400.00 in cash in escrow with the Fort Worth National Bank of Fort Worth, Texas, to cover the rentals of $400.00 per month which will become due and payable under the terms of said lease for the months of January, February, March, April, May and June, 1955 (same being the last six (6) months of said lease), the said Lessor, W. G. Embry, hereby gives his consent for said Lessee, Muntz Television Company, Inc., to enter into such field warehouse agreement with Lawrence Warehouse Company, as aforesaid, but such consent shall be without waiver or abatement of any terms or conditions set forth in said lease and is given with the specific understanding that all the terms and conditions of said lease shall remain in full force and effect.

"The parties agree that the Fort Worth National Bank shall hold said sum of $2,400.00 so placed in escrow until January 1, 1955, when said sum shall be paid over to W. G. Embry in payment of the rentals due and owing under said lease for the last six months thereof, as above set out, unless prior to January 1, 1955, the Muntz Television Company, Inc. shall breach said lease agreement - in which event, the said Bank shall have the right and authority to promptly pay over to the said W. G. Embry the said sum of $2,400.00. Upon the payment of said sum of $2,400.00 to the said W. G. Embry, as herein provided, the said W. G. Embry agrees to credit said Muntz Television Company, Inc. for the last six (6) months of said rentals to which he is entitled under said lease."

Co-appellant, Fort Worth National Bank, Fort Worth, Texas, enters this situation because, as the parties' stipulation established, $2,400 was deposited with that Bank on June 13, 1953 by Muntz under that agreement already quoted. Filing their petition below, August 18, 1954, these trustees sought to have the Bank turn over $2,013.43 on the theory such moneys remained their debtor's property, since this was a security deposit flowing to trustees by virtue of an omnibus order entered March 3, 1954. That amount, incidently, reflects adjustment for charges incurred by these trustees for use of the premises involved. In passing, we also note, that rejection of the Embry-Muntz agreement was asked for by trustees. Embry resisted the petition for turnover, at the threshold, by challenging jurisdiction of the district court. He contended the fund was deposited in escrow with the Bank who, in turn held the $2,400 in trust for him.Insisting that this money did not belong to Muntz, Embry demanded that sum from the bank.

Appellants would have us reverse and remand (with directions) the district judge's order confirming his special master's report and directing the bank to pay $2,013.43 over to these trustees.

Since this is not a straight bankruptcy proceeding, but one under Chapter X we must decide, at the outset, the applicability and extent of principles governing summary and plenary jurisdiction. See e.g. Duda v. Sterling Mfg. Co., 8 Cir., 1950, 178 F.2d 428, 433, 14 A.L.R.2d 899. Then, if appropriate we can apply them to the specific facts involved and determine if Embry and the Bank must be accorded a plenary proceeding. Implicit in this later aspect, of course is another question: Is the adverse claim colorable, substantial and ingenuous? We think First National Bank of Houston v. Lake, 4 Cir., 1952, 199 F.2d 524 contains an adequate explanation of cases cited by both parties to this appeal, while at the same time reflecting the answer to whether Chapter X completely overrides differences in summary and plenary jurisdiction. Chief Judge Parker could have been summarizing our problem here when he wrote. Id., 199 F.2d 532, 533:

"Appellant fails to distinguish between the power of the reorganization court over property of the debtor which has been pledged as collateral security and which is held by the creditor merely as security for a debt and its power over property which is claimed adversely to the debtor by one who is in possession asserting absolute ownership. It is clear that the reorganization court may not exercise summary jurisdiction in the latter case but may exercise it in the former * * *."

In their joint responsive pleading to appellees' petition for turnover we find appellants' paragraph five (5) stated:

"That the Forth Worth National Bank verily believes that said fund is the property of W. G. Embry and that said W. G. Embry is entitled to immediate possession thereof, but said bank stands willing and ready to pay the same to whomsoever it is due; and suggests that a plenary action be brought * * * to legally determine the right and title to said fund."

The special Master's conclusion of law numbered eight disposes of that problem in this fashion:

"W. G. Embry's claim to the funds * * * must necessarily be a claim against the bank as escrowee. The escrowee makes no substantial and adverse claim to the funds. Under such circumstances, in bankruptcy cases, the rule is established that summary jurisdiction lies to compel the escrowee to turn over the funds. Collier, On Bankruptcy ...

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