1. A bankruptcy court has jurisdiction to make orders not
subject to collateral attack in a proceeding for an "arrangement"
with unsecured creditors brought by a debtor corporation under
Chapter XI of the Chandler Act, although the financial and
corporate setup of the debtor are such that adequate protection and
relief cannot be obtained under the limitations of that chapter,
but require a reorganization under Chapter X with the special
procedure and safeguards which that chapter affords. P.
310 U. S.
446.
Chapter X, devised as a substitute for the equity receivership,
is specially adapted to the reorganization of large corporations
whose securities are held by the public, and sets up a special
procedure for the protection of widely scattered security holders
and the public through the intervention of the Securities and
Exchange Commission, while Chapter XI, which is peculiarly adapted
to the speedy composition of debits of small individual and
corporate businesses, omits the machinery for reorganization set up
by Chapter X, and contains no provision for participation by the
Commission in a proceeding under Chapter XI.
2. Chapters X and XI of the Chandler Act, in providing that a
plan or arrangement, to warrant its confirmation, shall be "fair
and equitable," use those words with the meaning attached to them,
as words of art, in cases of reorganization through equity
receiverships or under former § 77B,
viz., that, in any
plan of corporate reorganization, creditors are entitled to
priority over stockholders to the full extent of their debts, and
that any scaling down of
Page 310 U. S. 435
creditors' claims, without some fair compensating advantage to
them which is prior to the rights of stockholders, is inadmissible.
Northern Pacific Ry. Co. v. Boyd, 228 U.
S. 482. P.
310 U. S.
452.
3. Since Chapter XI admits of an "arrangement" only with respect
to unsecured creditors, without alteration of the relations of any
other class of security holders, and since it contemplates (as
required by § 366) that the arrangement shall be fair and equitable
within the meaning of the
Boyd case, it is evident that it
gives no appropriate scope for an arrangement of an unsecured
indebtedness held by hundreds of creditors of a corporation having
thousands of stockholders. P.
310 U. S.
452.
The hope of securing an arrangement which is fair and equitable
and in the best interests of unsecured creditors, without some
readjustment of the rights of stockholders such as may be had under
Chapter X, but is precluded by Chapter XI, is, at best, but
negligible, and, if accomplished at all, must be without the aids
to the protection of creditors and the public interest, including
participation by the Securities and Exchange Commission, which are
provided by Chapter X, and which would seem to be indispensable to
a just determination whether the plan is fair and equitable.
4. Whether confirmation of an arrangement proposed in this case
would be "for the best interest of the creditors," as § 366(2)
requires, depends upon whether the stockholders should be
eliminated or the creditors receive some substitute compensation,
and whether that compensation would be fair and equitable. It is
for the best interest of the creditors that these questions be
answered in a Chapter X proceeding. P.
310 U. S.
453.
5. Chapter XI has special scope in the case of small businesses,
where there are no public or private interests involved requiring
protection by the procedure and remedies of Chapter X. P.
310 U. S.
454.
6. Under § 146(2), a petition may not be filed under Chapter X
unless the judge is satisfied that "adequate relief" would not be
obtainable under Chapter XI. The adequacy of the relief under
Chapter XI must be appraised in comparison with that to be had
under Chapter X, and in the light of its effect on all the public
and private interests concerned including those of the debtor. P.
310 U. S.
454.
7. If the case is such that adequate relief cannot be obtained
under Chapter XI, the court, exercising its equity power, should
dismiss the proceeding under that chapter, leaving the petitioner
free to proceed under Chapter X, which affords every remedy
obtainable under Chapter XI, and more. Pp.
310 U. S.
455-456.
Page 310 U. S. 436
8. A bankruptcy court is a court of equity, § 2, 11 U.S.C. § 11,
and is guided by equitable doctrines and principles except insofar
as they are inconsistent with the Act, and an Act dealing with
bankruptcy should be read in harmony with the existing system of
equity jurisprudence, of which it is a part. Pp.
310 U. S. 455,
310 U. S.
457.
9. A court of equity may, in the exercise of its discretionary
jurisdiction, condition relief on fulfillment of a requirement
which will safeguard the public interest. It may withhold relief
altogether, in the public interest, when private right will not
suffer. P.
310 U. S.
455.
10. What the court can decide under the express terms of § 146
of Chapter X as to the adequacy of the relief afforded by Chapter
XI it can decide in the exercise of its equity powers under Chapter
XI for the purpose of safeguarding the public and private interests
involved and protecting its own jurisdiction from misuse. P.
310 U. S.
456.
11. It was the duty of the District Court in this case, in the
exercise of a sound discretion, to dismiss the petition under
Chapter XI, leaving the debtor to proceed under Chapter X. P.
310 U. S.
456.
12. The Securities and Exchange Commission, in view of the
duties and functions laid upon it in the public interest by Chapter
X of the Chandler Act, may be permitted, under Rule 24 of the Rules
of Civil Procedure and paragraph 37 of the General Orders in
Bankruptcy, to intervene in a Chapter XI proceeding and move its
dismissal upon the ground that resort to that chapter, rather than
Chapter X, interferes with performance of the Commission's duties
and violates the policy of the Act. P.
310 U. S.
458.
13. Upon a denial of such motion to dismiss, the Commission is
entitled to appeal, under §§ 24 and 25 of the Bankruptcy Act. P.
310 U. S.
460.
108 F.2d 94 reversed.
Certiorari, 309 U.S. 649, to review a judgment which reversed an
order of the District Court permitting the above-named Commission
to intervene in a proceeding under Chapter XI of the Bankruptcy
Act, and which dismissed the Commission's appeal from the denial of
its motions that an approval of the debtor's petition be vacated
and that the petition be dismissed, etc.
Page 310 U. S. 441
MR. JUSTICE STONE delivered the opinion of the Court.
The questions are whether respondent's petition for an
arrangement of its unsecured debts under Chapter XI of the
Bankruptcy Act should be dismissed because the relief obtainable
under that chapter is inadequate, and whether the Securities and
Exchange Commission is entitled to raise and litigate that question
by intervention and appeal.
Respondent, a New Jersey corporation doing business in New York
as owner of and manager of real estate investments,
Page 310 U. S. 442
has outstanding 900,000 shares of capital stock without par
value, which are listed on the New York Stock Exchange and are
stated by respondent to be held by some seven thousand
stockholders. It has liabilities of $5,051,416, of which only
$74,916 is current. This indebtedness includes two series of
publicly held debentures aggregating $2,339,000, maturing January
1, 1944, which are secured by a pledge of corporate stock of little
value and a $3,000,000 note, due August 12, 1939, which is secured
by a first mortgage owned by respondent. In addition, respondent is
also liable as a guarantor of payment, principal, and interest, and
sinking fund of mortgage certificates in the sum of $3,710,500,
issued by its wholly owned subsidiary Trinity Building Corporation
of New York and now in the hands of some nine hundred holders.
These certificates have been in default for failure to pay
interest, principal, and sinking fund since January 1, 1939. They
are secured by mortgage of real estate and buildings which are
Trinity's only substantial assets. Each year since 1936, respondent
has suffered a net loss in the conduct of its business, and is now
unable to pay its debts as they mature. [
Footnote 1]
Before maturity of the first mortgage certificates, respondent
and the Trinity Company joined in proposing to certificate holders
a plan for the modification of the
Page 310 U. S. 443
obligation of the certificates, leaving unaffected the other
indebtedness and stock of respondent. By this plan, the maturity of
the certificates was to be extended, the rate of interest reduced,
and the terms of the provisions for payment of the sinking fund
modified. Respondent's guarantee as to the extension and interest
was to be modified accordingly, and its guarantee of sinking fund
payments was to be eliminated. The plan was to be consummated by
resort to two proceedings, one to be instituted by respondent under
Chapter XI of the Bankruptcy Act, 11 U.S.C.Supp. V, § 701
et
seq., 52 Stat. 840, 905, for an "arrangement" modifying its
guarantee of the certificates in the manner already indicated. The
other was to be instituted on behalf of Trinity in the New York
state courts under the Burchill Act, New York Real Property Law, §§
121-123, to secure the appropriate modification of Trinity's
primary obligation on the certificates. The plan provided that
modification of respondent's guarantee by the Chapter XI proceeding
should stand, even though the state court should refuse to confirm
the proposed modification of Trinity's obligation on the
certificates. When the assent to the plan of holders of
certificates amounting to approximately 55 percent. in number and
amount, had been obtained, the present proceeding was begun May 31,
1939, by the filing in the district court for Southern New York of
a petition praying that the proposed "arrangement" affecting the
unsecured indebtedness of respondent be approved.
The district court found that the petition was properly filed
[
Footnote 2] under § 322 of
Chapter XI of the Bankruptcy Act,
Page 310 U. S. 444
and directed that respondent debtor continue in possession of
the property. On July 18, 1939, the district court entered an order
permitting the Securities and Exchange Commission to intervene. The
motions of the Commission to vacate the order approving the
debtor's petition, to dismiss the proceeding under Chapter XI, and
to deny confirmation of the proposed arrangement were denied by the
district court, and the cause was referred to a referee for further
proceedings. On appeal by the Commission from these several orders
and on appeal of the respondent from the order of the district
court permitting the Commission to intervene, the appeals being
consolidated and heard together, the Court of Appeals for the
Second Circuit reversed the order permitting the Commission to
intervene and dismissed the appeal of the Commission. 108 F.2d 794.
We granted certiorari, 309 U.S. 649, the questions raised bring of
public importance in the administration of the Bankruptcy Act.
The Court of Appeals held that the proceeding to secure approval
of the arrangement, embodied in the plan proposed by respondent,
was properly brought under Chapter XI of the Bankruptcy Act; that
the intervention by the Commission was not authorized by any
provision of the Bankruptcy Act, and that it had no interest
affected by the proceeding under that chapter entitling it to
intervene under the applicable rules controlling intervention in
the federal courts, and that consequently it was not aggrieved by
the order appealed from, and so was not entitled to maintain its
appeal.
The Commission argues that Chapter X of the Bankruptcy Act
prescribes the exclusive procedure for reorganization of a large
corporation having its securities
Page 310 U. S. 445
outstanding in the hands of the public such as respondent,
[
Footnote 3] and that
consequently the district court was without jurisdiction to
entertain respondent's petition under Chapter XI; that, in any
case, the district court should have dismissed the petition
because, in the circumstances, no fair and equitable arrangement
affecting respondent's unsecured creditors alone, such as is
prescribed by Chapter XI, can be consummated in a proceeding under
that chapter. Such being the status of the cause under Chapter XI,
the Commission insists that it was properly allowed to intervene in
order to protect the interest of the public specially committed to
its guardianship by the provisions of Chapter X, and to forestall
the impairment of its own functions under that chapter by an
unauthorized or improper resort by respondent to Chapter XI, and
that, for the same reason, the Commission was entitled to appeal
from the order of the district court refusing to dismiss the
Chapter XI proceedings.
To this it is answered, as the Court of Appeals held, that
respondent, although a large corporation with its securities widely
distributed in the hands of the public, is nevertheless within the
literal terms of Chapter XI, which unqualifiedly authorizes a
debtor to petition under that chapter for an arrangement with
respect of its unsecured indebtedness, and that the district court
was accordingly bound to entertain the petition, however desirable
it might be that the reorganization should proceed
Page 310 U. S. 446
under Chapter X, whose procedure is better adapted in cases like
the present to protect the public interest and to secure a fair and
equitable reorganization than are the provisions of Chapter XI.
Chapter XI provides a summary procedure by which a debtor may
secure judicial confirmation of an "arrangement" of his unsecured
debts. The debtor who is defined as a "person who could become a
bankrupt under section 4(22) of the Act," § 306(3), may, according
to sections 4 and 1(23), be any person (which includes
corporations), except a municipal, railroad, insurance, or banking
corporation or a building and loan association. The debtor files
his original voluntary petition for an arrangement in such a court
as would have jurisdiction of a petition in ordinary bankruptcy,
[
Footnote 4] and must file with
the petition the proposed arrangement. §§ 322, 323. An arrangement
is defined as "any plan of a debtor for the settlement,
satisfaction, or extension of the time of payment of his unsecured
debts, upon any terms." § 306(1). The unsecured debtors may be
treated generally or in classes. §§ 356, 357.
It is evident that the language of the sections to which we have
referred in terms confers on the court jurisdiction of a petition
for an arrangement, which the present petition is, filed by a
debtor, which the respondent is, in the technical sense that it
confers on the court power to make orders in the cause which are
not open to collateral attack.
See Pennsylvania v.
Williams, 294 U. S. 176,
294 U. S. 180
et seq. But the Commission points out that a proceeding
begun under Chapter X may be begun and continued under that chapter
only if the petition is filed in good faith, §§ 130(7), 143,
146(2), 221, and that, under § 146(2)
"a petition shall be deemed not to be filed in good faith if . .
. (2) adequate relief would be obtainable by a debtor's
petition
Page 310 U. S. 447
under the provisions of chapter XI(11);"
that Chapter X, devised as a substitute for the equity
receivership, is specially adapted to the reorganization of large
corporations whose securities are held by the public, and sets up a
special procedure for the protection of widely scattered security
holders and the public through the intervention of the Commission,
while Chapter XI which is peculiarly adapted to the speedy
composition of debts of small individual and corporate businesses,
omits the machinery for reorganization set up by Chapter X, and
contains no provision for participation by the Commission in a
proceeding under Chapter XI. From this it argues that the district
court was without jurisdiction to entertain respondent's petition
under Chapter XI, and the readjustment of its indebtedness through
judicial action can properly proceed only with the safeguards,
public and private, afforded by Chapter X.
While we do not doubt that, in general, as will presently appear
more in detail, the two chapters were specifically devised to
afford different procedures, the one adapted to the reorganization
of corporations with complicated debt structures and many
stockholders, the other to composition of debts of small individual
business and corporations with few stockholders, we find in neither
chapter any definition or classification which would enable us to
say that a corporation is small or large, its security holders few
or many, or that its securities are "held by the public," so as to
place the corporation exclusively within the jurisdiction of the
court under one chapter rather than the other. But, granting the
jurisdiction of the court, the question remains of the propriety,
in the circumstances, of its order retaining jurisdiction, and of
the extent of its duty to go forward with the proceeding under
Chapter XI in the face of the contention that Chapter X alone
affords a remedy adequately protecting the public and private
interests involved. The answer
Page 310 U. S. 448
turns not on the court's statutory jurisdiction to entertain a
proceeding under Chapter XI, but on considerations growing out of
the public policy of the Act found both in its legislative history
and in an analysis of its terms and of the authority of the court
clothed with equity powers and sitting in bankruptcy to give effect
to that policy through its power to withhold relief under Chapter
XI when relief is available under Chapter X which is adequate and
more consonant with that policy.
Before the enactment of Section 77B of the Bankruptcy Act, 48
Stat. 911, 912, the bankruptcy mechanism was designed for the final
liquidation of the bankrupt's estate, except to the extent only
that a compromise with creditors was authorized by §§ 12, 74.
Bankruptcy afforded no facilities for corporation reorganization
which, in consequence, could be effected only through resort to the
equity receivership, with its customary mortgage foreclosures and
its attendant paraphernalia of creditors' and security holders'
committees, and of rival reorganization plans. Lack of knowledge
and control by the court of the conditions attending formulation of
reorganization plans, the inadequate protection of widely scattered
security holders, the frequent adoption of plans which favored
management at the expense of other interests, and which afforded
the corporation only temporary respite from financial collapse, so
often characteristic of reorganizations in equity receiverships,
led to the enactment of 77B. [
Footnote 5]
The creation of the Securities and Exchange Commission,
specially charged by various statutes with the protection of the
interests of the investing public, [
Footnote 6] and
Page 310 U. S. 449
observed inadequacies of § 77B, [
Footnote 7] led to its revision and enactment in changed
form as Chapter X, so as to provide for a larger measure of control
by the court over security holders' committees and the formulation
of reorganization plans and to secure impartial and expert
administrative assistance in corporate reorganizations through
participation of the Commission. Except where the liabilities are
less than $250,000, Chapter X requires the appointment of a
disinterested trustee, §§ 156-158, and a thorough examination and
study by the trustee of the debtor's financial problems and
management, § 167(3)(5). The trustee is required to report the
result of his study, to send the report to all security holders
with
Page 310 U. S. 450
notice to submit to him proposals for a plan of reorganization,
§ 167(5)(6). He then formulates a plan or reports the reasons why a
plan cannot be formulated, § 169. By § 176, consent to a plan in
advance of its initial approval by the judge is void unless
procured with his consent. A large measure of control is given to
the court over the reorganization and of committees of security
holders and their compensation, §§ 163, 165, 209, 212, 241-243.
If the judge finds the plan presented worthy of consideration he
may refer it to the Commission for report and must do so where the
liabilities of the debtor, as in the present case, exceed
$3,000,000. § 172. When the plan is submitted to creditors after
approval by the judge it is accompanied by the report of the
Commission and the opinion of the judge approving the plan, § 175.
The Commission with the approval of the court is authorized to
participate generally in the proceedings as a party, and it is its
duty to do so upon request of the court, § 208.
No comparable safeguards are found in Chapter XI. [
Footnote 8] Every phase of the procedure
bearing on the administration of the estate and the development of
the arrangement is under the control of the debtor. The process of
formulating an arrangement and the solicitation of consent of
creditors, sacrifices to speed and economy every safeguard, in the
interest of thoroughness and disinterestedness,
Page 310 U. S. 451
provided in Chapter X. The debtor is generally permitted to stay
in possession and operate the business under the supervision of the
Court, § 342, and a trustee is provided for only in the case where
a trustee in bankruptcy has previously been appointed and is in
possession, or if "necessary" a receiver may be appointed. § 332.
The debtor proposes the arrangement, §§ 306(1), 323, 357, and the
only opportunity afforded the creditors in respect to the proposed
plan is to accept or reject it as submitted by the debtor.
Acceptances may be solicited either before or after filing the
petition and always before approval of the plan by the Court, §
336(4). Section 361 authorizes confirmation of an arrangement when
accepted by all the creditors affected by it, "if the court is
satisfied that the arrangement and its acceptance are in good
faith," and Section 362 permits confirmation if only a majority of
the creditors affected accept. The arrangement is to be confirmed
if the Court is satisfied that
"(1) the provisions of this Chapter have been complied with; (2)
it is for the best interests of the creditors; (3) it is fair and
equitable and feasible . . . ; and (5) the proposal and its
acceptance are in good faith. . . ."
§ 366.
There are no provisions for an independent study of the debtor's
affairs by court or trustee, or for advice by them to creditors
with respect to their rights or interests in advance of their
consent to the arrangement. Committees of the creditors are
permitted, §§ 334, 338, but there is no restriction on or
supervision over their selection and conduct as in Chapter X. The
arrangement may be consummated at the conclusion of a single
creditors' meeting. The Court in passing upon the arrangement, is
without the benefit of investigation and study by the trustee or
Commission, which Congress has required in reorganization
proceedings under Chapter X, and is then faced with the fact that a
majority of the creditors have already accepted the plan.
Page 310 U. S. 452
Still more important are the differences in the remedies
obtainable under the two chapters which result from differences in
the nature of the two proceedings and in the securities which may
be affected by them. A plan under Chapter X may affect one or more
classes of debts or securities of the corporation to be
reorganized, and a subsidiary of the debtor may be brought into
such a proceeding and reorganized with the debtor. § 129. Under
Chapter XI, only the rights of unsecured creditors of the debtor
may be arranged, and this without alteration of the status of any
other classes of security holders or of subsidiaries. Both chapters
provide for confirmation of the plan or arrangement by the judge
"if satisfied that" it "is fair and equitable and feasible" and if
"the proposal" of the plan or arrangement "and its acceptance are
in good faith," §§ 221, 366. "Fair and equitable," taken from § 77B
and made the condition of confirmation under both Chapter X or
Chapter XI, are "words of art" having a well understood meaning in
reorganizations in equitable receiverships and under § 77B which is
incorporated in the structure of both Chapters X and XI.
See
Case v. Los Angeles Lumber Products Co., 308 U.
S. 106,
308 U. S. 115
et seq. The phrase signifies that the plan or arrangement
must conform to the rule of
Northern Pacific Ry. Co. v.
Boyd, 228 U. S. 482,
which established the principle which we recently applied in the
Los Angeles case, that, in any plan of corporate
reorganization, unsecured creditors are entitled to priority over
stockholders to the full extent of their debts, and that any
scaling down of the claims of creditors without some fair
compensating advantage to them which is prior to the rights of
stockholders is inadmissible.
Since the sections under Chapter XI already considered admit of
an "arrangement" only with respect to unsecured creditors without
alteration of the relations of any other
Page 310 U. S. 453
class of security holders, and since it contemplates, as
required by § 366, that the arrangement shall be fair and equitable
within the meaning of the
Boyd case, it is evident that
Chapter XI gives no appropriate scope for an arrangement of an
unsecured indebtedness held by some nine hundred individual
creditors of a corporation having seven thousand stockholders. The
hope of securing an arrangement which is fair and equitable and in
the best interests of unsecured creditors, without some
readjustment of the rights of stockholders such as may be had under
Chapter X, but is precluded by Chapter XI, is, at best, but
negligible, and, if accomplished at all, must be without the aids
to the protection of creditors and the public interest which are
provided by Chapter X, and which would seem to be indispensable to
a just determination whether the plan is fair and equitable.
Respondent suggests that the proposed arrangement may be taken
to satisfy the test of the
Boyd case, since, under it, the
certificate holders would receive a new guarantee, enforceable as
to principal notwithstanding the New York moratorium law, in place
of the old guarantee to which that law applies.
See Honeyman v.
Hanen, 275 N.Y. 382, 9 N.E.2d 970,
appeal dismissed,
302 U. S. 375. It
also insists that it is not impossible that an arrangement of its
unsecured indebtedness under Chapter XI may be proposed which would
meet the test. It states that, availing itself of the privilege
afforded by § 363, it has proposed an amended arrangement which is
not in the record and the terms of which are not disclosed. But it
suggests that the arrangement could be amended so as to provide for
a ratable distribution to certificate holders of preferred stock of
Trinity, respondent's subsidiary, held by respondent or for a
similar distribution of cash. But such suggestions raise the
question whether the supposed advantage to the creditors is a fair
and adequate substitute for the elimination of stockholders within
the
Page 310 U. S. 454
requirements of the
Boyd case -- a question which
obviously cannot be answered with any assurance in the present case
without resort to the facilities for investigation of the financial
condition and structure of the debtor and its subsidiary, and to
the expert aid and advice of the Commission available under Chapter
X.
Confirmation of an arrangement follows a finding of the court
that it is for the best interests of the creditors, § 366(2). Here,
determination of what is in the "best interest of the creditors"
depends on the answer to the question whether the stockholders
should be eliminated or the creditors should receive some
substitute compensation, and whether that compensation is fair and
equitable. In a situation like the present, it is in the best
interests of the creditors that these questions should be answered
in a Chapter X proceeding.
While this means that arrangements of unsecured debts of
corporations, like respondent, may not be "in the best interests of
creditors" and "feasible" under Chapter XI, it does not mean that
there is no scope for application of that chapter in many cases
where the debtor's financial business and corporate structure
differ from respondent's. This is especially the case with small
individual or corporate business where there are no public or
private interests involved requiring protection by the procedure
and remedies afforded by Chapter X. In cases where subordinate
creditors or the stockholders are the managers of its business, the
preservation of going concern value through their continued
management of the business may compensate for reduction of the
claims of the prior creditors without alteration of the
management's interests, which would otherwise be required by the
Boyd case.
See Case v. Los Angeles Lumber Products
Co., supra, 308 U. S.
121-122.
Under § 146(2), a petition may not be filed under Chapter X
unless the judge is satisfied that "adequate relief" would not be
obtainable under Chapter XI.
Page 310 U. S. 455
Obviously the adequacy of the relief under Chapter XI must be
appraised in comparison with that to be had under Chapter X, and in
the light of its effect on all the public and private interests
concerned including those of the debtor. Applying this test, if
respondent had proceeded under Chapter X, the judge would have been
compelled, upon inquiry, to approve its petition on the ground that
it complied with the requirements of Chapter X and that adequate
relief could not be obtained under Chapter XI. That being the case,
the question here is whether, in the absence of any provision of
Chapter XI specifically authorizing the dismissal of the petition,
the district court should, on that ground, have dismissed the
proceeding under Chapter XI, leaving respondent free to proceed
under Chapter X, which affords every remedy which could be obtained
under Chapter XI and more.
A bankruptcy court is a court of equity, § 2, 11 U.S.C. § 11,
and is guided by equitable doctrines and principles except insofar
as they are inconsistent with the Act.
Bardes v. Hawarden
Bank, 178 U. S. 524,
178 U. S.
534-535;
Continental Illinois Nat. Bank & T. Co.
v. Chicago R.I. & P. Ry. Co., 294 U.
S. 648,
294 U. S. 675;
Wayne United Gas Co. v. Owens-Illinois Glass Co.,
300 U. S. 131;
Pepper v. Litton, 308 U. S. 295. A
court of equity may, in its discretion, in the exercise of the
jurisdiction committed to it, grant or deny relief upon performance
of a condition which will safeguard the public interest. It may, in
the public interest, even withhold relief altogether, and it would
seem that it is bound to stay its hand in the public interest when
it reasonably appears that private right will not suffer.
Pennsylvania v. Williams, supra, 294 U. S. 185,
and cases cited;
Virginian Ry. Co. v. Federation,
300 U. S. 515,
300 U. S. 549
et seq. Before the provisions for alternative remedies
were brought into the Bankruptcy Act by Chapters X and XI, the
occasion was rare when a court could have felt free to deny a
petition in order to serve some public
Page 310 U. S. 456
or collateral interest at the expense of the petitioner's right
to an adjudication. But here, respondent, if dismissed, need not go
without remedy. All that it can secure rightly or equitably in a
Chapter XI proceeding is to be had in a Chapter X proceeding. The
case stated most favorably to respondent is that it has proposed an
arrangement which appears on its face not to be "fair and
equitable" and hence not to be entitled to confirmation under
Chapter XI. Respondent's circumstances, as disclosed by its
petition and proposed arrangement, are such as to raise a serious
question whether any fair and equitable arrangement in the best
interest of creditors can be effected without some rearrangement of
its capital structure. In any case, that and subsidiary questions
cannot be answered in the best interest of creditors without
recourse to the procedure of a Chapter X proceedings. Pending the
litigation, respondent seeks to stay the hand of its creditors and,
in the meantime, to avoid that inquiry into its financial condition
and practices and its business prospects provided for by Chapter X,
without which there is at least danger that any adjustment of its
indebtedness will not be just and equitable, and that its revived
financial life will be too short to serve any public or private
interest other than that of respondent.
In this situation, we think the court was as free to determine
whether the relief afforded by Chapter XI was adequate as it would
have been if respondent had filed its petition under Chapter X.
What the court can decide under § 146 of Chapter X as to the
adequacy of the relief afforded by Chapter XI it can decide in the
exercise of its equity powers under Chapter XI for the purpose of
safeguarding the public and private interests involved and
protecting its own jurisdiction from misuse. Here we think it was
plainly the duty of the district court, in the exercise of a sound
discretion, to have dismissed the
Page 310 U. S. 457
petition remitting respondent if it was so advised to the
initiation of a proceeding under Chapter X, in which it may secure
a reorganization which, after study and investigation appropriate
to its corporate business structure and ownership, is found to be
fair, equitable, and feasible, and in the best interest of
creditors. While a bankruptcy court cannot, because of its own
notions of equitable principles, refuse to award the relief which
Congress has accorded the bankrupt, the real question is what is
the relief which Congress has accorded the bankrupt, and is it more
likely to be secured in a Chapter X or Chapter XI proceeding? In
answering it, we cannot assume that Congress has disregarded well
settled principles of equity, the more so when Congress itself has
provided that the relief to be given shall be "fair and equitable
and feasible." Good sense and legal tradition alike enjoin that an
enactment of Congress dealing with bankruptcy should be read in
harmony with the existing system of equity jurisprudence of which
it is a part.
If respondent had sought relief by way of an equity
receivership, such would have been the duty of the Court.
Pennsylvania v. Williams, supra. We think it is no less so
here. Before the enactment of Chapters X and XI, the district court
in a 77B proceeding was "not bound to clog its docket with
visionary or impracticable schemes for resuscitation," however
honest the efforts of the debtor and however sincere its motives,
and it was its duty to dismiss the proceeding whenever it appeared
that a fair and equitable plan was not feasible, leaving the debtor
to the alternative remedy of bankruptcy liquidation,
see
Tennessee Publishing Co. v. American National Bank,
299 U. S. 18,
299 U. S. 22.
And it has long been the practice of bankruptcy courts to permit
creditors or others not entitled to file pleadings or otherwise
contest the allegations of a petition to move for the vacation of
an adjudication
Page 310 U. S. 458
or the dismissal of a petition on grounds, whether strictly
jurisdictional or not, [
Footnote
9] that the proceeding ought not to be allowed to proceed.
The Court of Appeals thought that the Commission had no such
special interest as to entitle it to intervene as of right in the
Chapter XI proceeding, and concluded that the district court erred
in permitting the intervention, and that, from this, it followed
that the Commission had no right to appeal. Its decision is, in
effect, that a governmental agency not asserting the right to
possession or control of specific property involved in a litigation
may not be permitted to intervene without statutory authority.
Neither Chapter X nor Chapter XI, in terms, gives a right of
"intervention," but the Commission is authorized, with the
permission of the court, to appear in any Chapter X proceedings, §
208. Such right as the Commission may have to intervene in a
Chapter XI proceeding is therefore governed by the Rules of Civil
Procedure and the general principles governing intervention. We are
not here concerned with the refinements of the distinction between
intervention as a matter of right, which the Court of Appeals
thought was restricted to cases where the intervenor has a direct
pecuniary interest in the litigation, and permissive intervention,
a distinction which has been preserved by Rule 24 of the Rules of
Civil Procedure. For here, the question is not of the Commission's
intervention "as of right," but whether the district court abused
its discretion in permitting it to intervene.
The Commission is, as we have seen, charged with the performance
of important public duties in every case brought under Chapter X,
which will be thwarted, to the
Page 310 U. S. 459
public injury, if a debtor may secure adjustment of his debts in
a Chapter XI proceeding when, upon the applicable principles which
we have discussed, he should be required to proceed, if at all,
under Chapter X. The Commission's duty and its interest extends not
only to the performance of its prescribed functions where a
petition is filed under Chapter X, but to the prevention, so far as
the rules of procedure permit, of interferences with their
performance through improper resort to a Chapter XI proceeding in
violation of the public policy of the Act which it is the duty of
the court to safeguard by relegating respondent to a Chapter X
proceeding. The Commission did not here intervene to perform the
advisory functions required of it by Chapter X, but to object to an
improper exercise of the court's jurisdiction which, if permitted
to continue, contrary to the court's own equitable duty in the
premises, would defeat the public interests which the Commission
was designated to represent. Sen.Rep. No.1916, 75th Cong., 3d
Sess., p. 31.
Rule 24 of the Rules of Civil Procedure, made applicable to
bankruptcy proceedings by paragraph 37 of the General Orders for
Bankruptcy, authorizes "permissive intervention." It directs
that,
"upon timely application, anyone shall be permitted to intervene
in an action . . . (2) when an applicant's claim or defense and the
main action have a question of law or fact in common. In exercising
its discretion, the court shall consider whether the intervention
will unduly delay or prejudice the adjudication of the rights of
the original parties."
This provision plainly dispenses with any requirement that the
intervenor shall have a direct personal or pecuniary interest in
the subject of the litigation.
Cf. Pennsylvania v. Williams,
supra. If, as we have said, it was the duty of the court to
dismiss the Chapter XI proceeding because its maintenance there
would defeat the public interest in having any scheme of
reorganization of respondent
Page 310 U. S. 460
subjected to the scrutiny of the Commission, we think it plain
that the Commission has a sufficient interest in the maintenance of
its statutory authority and the performance of its public duties to
entitle it, through intervention, to prevent reorganizations, which
should rightly be subjected to its scrutiny from proceeding without
it.
The Exchange v.
M'Faddon, 7 Cranch. 116;
Stanley v.
Schwalby, 147 U. S. 508;
Interstate Commerce Commission v. Oregon-Washington R.
Co., 288 U. S. 14;
Pennsylvania v. Williams, supra. See Hopkins Saving
Assn. v. Cleary, 296 U. S. 315.
Cf. In re Debs, 158 U. S. 564;
New York v. New Jersey, 256 U. S. 296,
256 U. S.
307-308.
This interest of the Commission does not differ from that of a
liquidator under a state statutory proceeding who may, in a proper
case, intervene in an equity receivership in a federal court to ask
the court to relinquish its jurisdiction in favor of the state
proceeding.
Pennsylvania v. Williams, supra. Neither the
liquidator nor the state has any personal, financial or pecuniary
interest in the property in the custody of the federal court. Their
only interest, like that of the Commission, is a public one, to
maintain the state authority and to secure a liquidation in
conformity to state policy. The "claim or defense" of the
Commission founded upon this interest has a question of law in
common with the main proceeding in the course of which any party or
a creditor could challenge the propriety of the court's proceeding
under Chapter XI. [
Footnote
10] The claim or defense is thus within the requirement of Rule
24, and intervention was properly allowed. The Commission was
therefore a party aggrieved by the court's order refusing to
dismiss, and was entitled to appeal under §§ 24 and 25 of the
Bankruptcy Act.
See Interstate Commerce Commission v.
Oregon-Washington R. Co., supra; Texas v. Anderson, Clayton &
Co., 92 F.2d 104.
Page 310 U. S. 461
Section 208, applicable to proceedings under Chapter X, gives
the Commission, upon filing its notice of appearance, "the right to
be heard on all matters arising in such proceeding," but provides
that it "may not appeal or file any petition for appeal in any such
proceeding." As § 208 has no application to a proceeding under
Chapter XI, it is unnecessary to consider the suggestion of the
Commission that the limitation of the section is upon appeals to
review questions arising in the proceeding from the performance by
the Commission of its advisory functions, and does not preclude it
from appealing to challenge the exercise or nonexercise by the
district court of its jurisdiction under Chapter X.
Reversed.
MR. JUSTICE DOUGLAS did not participate in the decision of this
case.
[
Footnote 1]
The alleged value of debtor's assets is $7,076,515. Of this,
$5,200,000 is represented by the stock of the subsidiary and a
first mortgage on a building owned by the subsidiary which is
pledged to secure respondent's $3,000,000 note. Current assets are
less than $400,000. The balance of the assets, consisting chiefly
of mortgages, loans, and other securities in the amount of
$555,655, an investment of $477,300 in securities of an independent
company, unimproved real estate valued at $290,000, and a note
receivable from a subsidiary of $137,500. As against the total
nominal value of these assets of $7,076,515, the debtor's total
liabilities, including its liability on the matured debenture
certificates, are $9,261,916.
[
Footnote 2]
The record shows that counsel for one of the committees of
bondholders interposed objections to the Chapter XI proceedings and
proposed to file an involuntary petition under Chapter X. The
district judge expressed the opinion that a Chapter X proceeding
was preferable, but, when the debtor agreed to make an immediate
interest payment of one and one-half percent. for the purpose of
dissuading the creditors from filing the Chapter X petition, and
when the objecting creditors accepted the offer and dropped the
involuntary petition, the judge felt compelled to continue the
Chapter XI proceeding.
[
Footnote 3]
By § 126, a corporation or three or more creditors may file a
petition under Chapter X.
By § 130, every petition shall state:
"(1) that the corporation is insolvent or unable to pay its
debts as they mature;"
"(2) the applicable jurisdictional facts requisite under this
chapter;"
"
* * * *"
"(7) the specific facts showing the need for relief under this
chapter and why adequate relief cannot be obtained under chapter
XI(11) of this Act. . . ."
[
Footnote 4]
§ 311 confers on the court in which the petition is filed
exclusive jurisdiction of the debtor and his property, where not
inconsistent with the provisions of the chapter.
[
Footnote 5]
See S.Doc. No. 65, 72d Cong., 1st Sess., p. 90; H.Rept.
No. 1409, 75th Cong., 1st Sess., p. 2.
[
Footnote 6]
The basic assumption of Chapter X and other acts administered by
the Commission is that the investing public, dissociated from
control or active participation in the management, needs impartial
and expert administrative assistance in the ascertainment of facts,
in the detection of fraud, and in the understanding of complex
financial problems.
See, e.g., Securities Act of 1933, 48
Stat. 74, 15 U.S.C. §§ 77a-77aa; Securities and Exchange Act of
1934, 48 Stat. 881, 15 U.S.C. § 78
et seq.; Public Utility
Holding Company Act of 1935, 49 Stat. 838, 15 U.S.C. Supp. V, § 79
et seq.; Trust Indenture Act of 1939, 53 Stat. 1149, 15
U.S.C. Supp. V, §§ 77aaa-77bbbb.
[
Footnote 7]
The revision of 77B resulted from the investigation of a Special
Senate Committee to Investigate Receivership and Bankruptcy
Proceedings, S.Doc. No. 268, 74th Cong., 2d Sess., and from a study
by the Securities and Exchange Commission of the degree of
protection afforded to the investing public in reorganizations.
Report on the Study and Investigation of the Work, Activities,
Personnel and Functions of Protective and Reorganization Committees
(1936-1939).
See Hearings before the Committee on the
Judiciary on H.R. 8046, 75th Cong., 1st Sess.; Hearings before a
Subcommittee of the Senate Committee on the Judiciary on H.R. 8046,
75th Cong., 2d Sess.; H.Rept. No. 1409, 75th Cong., 1st Sess.;
S.Rept. No.1916, 75th Cong., 3d Sess.
See Dodd, The
Securities and Exchange Commission's Reform Program for Bankruptcy
Reorganizations, 38 Col.L.Rev. 223; Swaine, "Democratization" of
Corporate Reorganizations, 38 Col.L.Rev. 256; Heuston, Corporate
Reorganizations under the Chandler Act, 38 Col.L.Rev. 1199; Teton,
Reorganization Revised, 48 Yale L.J. 573; Gerdes, Corporate
Reorganizations -- Changes Effected by Chapter X of the Bankruptcy
Act, 52 Harv.L.Rev. 1; Rostow and Cutler, Competing Systems of
Reorganization, Chapters X and XI of the Bankruptcy Act, 48 Yale
L.J. 1334.
[
Footnote 8]
Chapter XI was sponsored by the National Association of Credit
Men and other groups of creditors' representatives expert in
bankruptcy. Hearings before the House Committee on the Judiciary on
H.R. 6439 (reintroduced and passed in 1938 as H.R. 8046), 75th
Cong., 1st Sess., pp. 31, 35. Their business of representing trade
creditors in small and middle-sized commercial failures is an
important factor in the background of the chapter.
See
Montgomery, Counsel for the Association of Credit Men, on
Arrangements, 13 J.N.A.Ref.Bankruptcy 17.
[
Footnote 9]
Royal Indemnity Co. v. American Bond & Mortgage
Co., 61 F.2d 875,
aff'd, 289 U. S. 289 U.S.
165;
In re Ettinger, 76 F.2d 741;
Chicago Bank of
Commerce v. Carter, 61 F.2d 986;
Vassar Foundry Co. v.
Whiting Corp., 2 F.2d 240;
In re Nash, 249 F.
375.
[
Footnote 10]
See Note 8
supra.
MR. JUSTICE ROBERTS.
The Chandler Act [
Footnote 2/1]
revised the Bankruptcy Act of 1898, as amended, and, in chapters X,
XI, XII, XIII, and XIV, provided for corporate reorganizations,
arrangements, real property arrangements, wage earners' plans, and
Maritime Commission liens. These, with chapter VIII, authorizing
agricultural compositions, chapter IX, dealing with indebtedness of
local taxing agencies, chapter XV, added by Act of July 28, 1939,
53 Stat. 1134, and § 77, relating to reorganization of interstate
railroads, in addition to the seven chapters of the original Act,
constitute a comprehensive system for accommodating or liquidating
indebtedness in the interest of both debtors and creditors. In
chapters X to XIII, inclusive, added by the Chandler Act, the first
section states: "The provisions of this chapter shall apply
exclusively to proceedings under this chapter," thus evidencing the
purpose to
Page 310 U. S. 462
make each type of proceeding complete and exclusive of the
others.
The proceeding instituted by the respondent, as is conceded,
falls precisely within the terms of chapter XI, which deals with
arrangements, and confers jurisdiction on the District Court to
entertain the cause. But it is said that for the court to exercise
that jurisdiction would be so contrary to the unexpressed purpose
of Congress that the court should have refused to act. The decision
assumes that, if Congress had been interrogated as to its intent,
it would have expressed its will that an arrangement by one having
such a financial structure as the respondent should not be
permitted, and that, in order to prevent such a result, Congress,
if it had been prescient, would have so stated. This seems to me to
go beyond the construction of the Act as it is written, and to
amount to an amendment of it. I think that this is not admissible,
on the ground advanced, that to hold otherwise would be to nullify,
rather than to effectuate, the intent of Congress which is thought
to pervade the statutory scheme.
Where the words are as plain and unambiguous as they are in
chapter XI, recourse cannot be had to legislative history or other
extraneous aids to construe them in some other sense, to add to, or
to subtract from, what is written. [
Footnote 2/2]
But, if resort to conventional aids to construction were
admissible, they seem to me to confirm the statutory right of the
respondent to proceed under chapter XI and to
Page 310 U. S. 463
preclude a holding that it should have proceeded under chapter
X.
Under § 12 of the Bankruptcy Act of 1898, a corporation could
propose a composition, but, as recourse to bankruptcy, whether for
the purpose of liquidation or of proposing a composition, was
dependent upon insolvency as defined in the statute, rather than
mere inability to pay debts as they accrued, a company finding
itself in the latter condition could not avail itself of the
bankruptcy jurisdiction, but had to resort to an equity
receivership.
In 1932, the Solicitor General, in a report to the President on
the Bankruptcy Act and its administration, [
Footnote 2/3] pointed out the difficulties of proposing
a composition in bankruptcy, and suggested relief of the sort which
was ultimately accorded by the adoption of § 77B.
By an Act of March 3, 1933, [
Footnote 2/4] there was added to the Act a provision
which permitted "any person excepting a corporation," by petition,
or by answer in an involuntary proceeding, to assert his insolvency
or his inability to meet his debts as they accrued and his desire
to effect a composition or an extension of time to pay his debts,
and to adjust his indebtedness in that way. Thus, an arrangement
procedure was provided for individuals who were not insolvent in
the bankruptcy sense. The same legislation also provided for
agricultural compositions and extensions, and for reorganizations
of interstate railroads, but Congress did not, at that time, afford
any further relief to corporations generally.
By the Act of June 7, 1934, [
Footnote 2/5] § 77B was added, permitting the
reorganization of a corporation unable to meet its debts as they
mature.
Page 310 U. S. 464
When, by the Chandler Act, Congress determined to revise and
codify the entire bankruptcy system, it repealed § 12 and § 74,
and, in view of them, adopted chapter XI, permitting arrangements
of unsecured debts by individuals, partnerships, and corporations.
[
Footnote 2/6] It thus clearly drew
a distinction between a reorganization which affects various
classes of creditors and stockholders and an arrangement which is
merely an extension, adjustment, or accommodation of unsecured
claims without disturbing either secured claims or stock interests.
Where this simple form of accommodation would suffice, it was not
intended that the corporation should have the privilege of a
reorganization under chapter X, the successor of § 77B, for it is
provided in chapter X (§ 146) that a petition shall not be deemed
to be filed in good faith if adequate relief would be obtainable by
a debtor's petition under the provisions of chapter XI, and further
(§ 147) that a petition filed under chapter X improperly, because
adequate relief can be obtained under chapter XI, may be amended to
comply with chapter XI, and may be proceeded with as if originally
filed under the latter. No such provision is found in chapter XI
with respect to a case properly falling under chapter X. Obviously
the right to proceed under chapter X was deemed a privilege of
which a corporation could not avail itself if it could proceed
under chapter XI.
The gravamen of petitioner's argument is that Congress intended
the more detailed and cumbersome procedure of chapter X to apply
wherever securities of the corporation were held by the public,
whereas chapter XI was intended to apply only in the case of
individuals or corporations not having such securities
outstanding.
The Act will be searched in vain for any hint of such a
distinction. Small corporations are permitted to avail
Page 310 U. S. 465
themselves of chapter X if stockholders' or secured creditors'
rights are to be affected; large corporations, under the very
letter of chapter XI, may avail themselves of its provisions if all
they desire to do is to extend or accommodate their unsecured
indebtedness. The smallest corporation cannot come in under chapter
XI if it desires what has been traditionally known as a
reorganization. The largest corporation may proceed under chapter
XI if it does not desire a reorganization.
The argument of the Commission comes merely to this: that
foresight and providence on the part of Congress would have
dictated a different line of demarcation between the two chapters,
and that what Congress should have said in chapter XI was that any
debtor which did not have securities outstanding in the hands of
the public might file a petition under chapter XI, but that all
others must file under chapter X.
The legislative history furnishes but the scantiest support for
the argument. Indeed, it bears quite as strongly against the
Commission's contention as in its favor. The only item to which
counsel is able to point is a committee report to the House
[
Footnote 2/7] wherein it is
said:
"Section 12 has been recast; such features of section 74 are
incorporated as are deemed of value and the combined sections are
made Chapter XI of the Act under the title 'Arrangement' . . . The
inclusion of corporations will permit a large number of the smaller
companies such as are now seeking relief under Section 77B, but do
not require the complex machinery of that section, to resort to the
simpler and less expensive though fully adequate relief afforded by
Section 12."
It is undoubtedly true that many more small corporations will
find chapter XI available than large ones, but this does not at all
support the Commission's claim that
Page 310 U. S. 466
the chapter was not intended to be available to companies having
securities in the hands of the public.
On the other hand, testimony before the Congressional Committee
was to the effect that large corporations would not come under
chapter X if they were seeking merely to adjust their unsecured
debts, and should go therefore under chapter XI. [
Footnote 2/8]
One of the draftsmen of the Chandler Act, in a public
exposition, [
Footnote 2/9] has
said:
"What is the line of demarcation between proceedings under
Chapter X and Chapter XI? Without attempting to go into detail,
Chapter XI proceedings are intended for the reorganization of
corporations with simple debt structures -- reorganizations under
which the interests of stockholders and secured creditors are not
to be modified or readjusted. If secured claims or stock interests
are to be changed without the consent of all of the stockholders
and secured creditors, proceedings must be instituted under Chapter
X."
That chapters X and XI were not written in ignorance of the
distinction between corporations having publicly owned securities
and those which have not is shown by the fact that a special
committee's report called attention to this difference, and
suggested that corporations not having such securities outstanding
be permitted to go under the arrangements chapter whereas the first
named should be required to file under what is now chapter X.
[
Footnote 2/10] With this
suggestion before it, Congress adopted a different criterion.
When all is considered, it is evident that little support for
the Commission's argument can be gained from the
Page 310 U. S. 467
legislative history. It is of no avail to urge that it would
have been far better for Congress to adopt a different scheme, and
that the public interest which Congress had in mind in writing
chapter X extends quite as much to a composition such as that
proposed in the instant case as to the reorganizations envisaged in
chapter X. These considerations may well be urged upon Congress in
support of an amendment of the statute, but they can have no weight
with a court called upon to apply its plain language.
Equally unavailing is the argument that the present case must
belong under chapter X, since secured creditors and stockholders
must be brought into the reckoning and because one of the
requirements of § 366 is that the court must find the arrangement
is "fair and equitable and feasible." It is said that this phrase
is a term of art, given meaning by our decision in
Northern
Pacific R. Co. v. Boyd, 228 U. S. 482, and
that, within that meaning, no fair, equitable, and feasible plan
can here be accomplished under chapter XI, although it could be
under chapter X.
The short answer is that the phrase is used not only in chapter
XI and chapter X, but also in chapter XII, respecting real property
arrangements, and in chapter XIII, respecting wage earners' plans.
[
Footnote 2/11] Obviously the
phrase, as used in the Chandler Act, must be given the connotation
appropriate to the section in which it is used.
Another argument put forward is that, as courts of bankruptcy
are courts of equity, they may, as a chancellor might in the case
of a bill for receivership, find that the balance of convenience
requires a refusal to exercise a jurisdiction possessed. I think
this is a complete misapplication of the principle that a court of
bankruptcy is a court of equity. That has been many times stated,
but never in connection with the right of a debtor to invoke the
remedy provided by Congress in the bankruptcy laws.
Page 310 U. S. 468
The legislature has specified who is entitled to the relief
provided by the statute and in what circumstances. The court has no
power to refuse that relief on the ground that some other relief
would better serve the purpose. What is meant by the statement that
a court of bankruptcy is a court of equity is that its function is
to make an equitable distribution of the estate among the
creditors, but the principle has not been applied in the sense,
that the court may, in its better judgment, refuse to award the
relief which Congress has accorded the bankrupt.
No stockholder or creditor, secured or unsecured, has attempted
to raise the question of the District Court's jurisdiction under
chapter XI. The Securities and Exchange Commission, although
charged with no duty by the Act in connection with proceedings
under chapter XI, has sought to intervene and to appeal from a
decision by the District Court adverse to the Commission's views.
Although the Commission may be permitted to appear in chapter X
proceedings, it is expressly provided that it may not appeal from
any decision. [
Footnote 2/12] No
analogous provision is found in chapter XI, although that chapter
does, in certain instances, grant interested parties the right to
be heard. [
Footnote 2/13]
By general order, the Rules of Civil Procedure are made
applicable in bankruptcy so far as practicable. It is suggested
that Rule 24 authorizes the Commission's intervention, but a mere
reading of the rule shows that neither intervention of right nor
permissive intervention is available to the Commission in this
case. The Commission may not intervene as of right under the rule,
because no statute confers on it an unconditional right to
intervene; the Commission has no interest which may be bound by a
judgment in the action, and it cannot be
Page 310 U. S. 469
adversely affected by the court's decision. It is not entitled
to permissive intervention, because no statute confers a
conditional right to intervene and because it has no claim or
defense which will be affected by any decision of law or fact by
the court. The cases in which bankruptcy courts have allowed
creditors to raise questions of venue or of jurisdiction to
adjudicate under the terms of the statute, where the proceeding
would affect the creditors' financial interest, are inapposite, as
are also equity receivership cases where an official intervenes in
order to claim the right, as such official, to take over and
administer the property in the possession of the court.
I am of the opinion that the judgment should be affirmed.
THE CHIEF JUSTICE and MR. JUSTICE McREYNOLDS agree with this
opinion.
[
Footnote 2/1]
Act of June 22, 1938, 52 Stat. 840.
[
Footnote 2/2]
Thompson v. United States, 246 U.
S. 547,
246 U. S. 551;
Iselin v. United States, 270 U. S. 245,
270 U. S. 250;
United States v. Missouri Pacific R. Co., 278 U.
S. 269,
278 U. S. 277;
United States v. Shreveport Grain & Elevator Co.,
287 U. S. 77,
287 U. S. 83;
Helvering v. City Bank Farmers Trust Co., 296 U. S.
85,
296 U. S. 89;
Wallace v. Cutten, 298 U. S. 229,
298 U. S. 237;
Osaka Shosen Line v. United States, 300 U. S.
98,
300 U. S. 101;
Palmer v. Massachusetts, 308 U. S. 79,
308 U. S.
83.
[
Footnote 2/3]
Sen.Doc. 65, 72d Cong., 1st Sess.
[
Footnote 2/4]
47 Stat. 1467, § 74.
[
Footnote 2/5]
48 Stat. 911.
[
Footnote 2/6]
11 U.S.C. §§ 706, 707.
[
Footnote 2/7]
H.Rep. 1409, 75th Cong., 1st Sess., pp. 50-51.
[
Footnote 2/8]
Hearings, Subcommittee Senate Judiciary Committee on H.R. 8046,
75th Cong., 2d Sess., p. 75.
[
Footnote 2/9]
Journal of the National Association of Referees in Bankruptcy
(Jan.1939), p. 72.
[
Footnote 2/10]
Sen.Doc. 268, 74th Cong., 2d Sess., pp. 9-15.
[
Footnote 2/11]
See §§ 472 and 656, 11 U.S.C. §§ 872, 1056.
[
Footnote 2/12]
§ 208, 11 U.S.C. § 608.
[
Footnote 2/13]
§§ 334 and 365, 11 U.S.C. §§ 734 and 765.